Academic journal article European Research Studies

Investigating Factors Predicting Derivative Mishandling: A Sociological Perspective

Academic journal article European Research Studies

Investigating Factors Predicting Derivative Mishandling: A Sociological Perspective

Article excerpt

1. Introduction

Waring, Wiesburd and Chayet (1995) claim that although efforts have been made to link white collar crime and anomie, there hasn't been an intensive effort to expand on the relationship between these two factors. They believe that Meton's theory of anomie can propose a deeper understanding of white collar crime. They argue that Sutherland's (1947) work had a great influence on Merton and both rejected theories that poverty and crime were casually related. Sutherland (1947) claims that competition drives people to achieve higher goals. People compete either because they like to defeat their competitors or because they want the material rewards associated with the winning. Therefore restrictions or inhibitions on competition are aggravating.

The 2008 scandal of Societe Generale, which resulted in a reported loss of 4.9bn [euro] at the hands of trader Jerome Kerviel, caught the authors' attention who were intrigued by the fact that nearly, always in these situations, companies, both financial and non- financial ones, continuously seemed to find a scapegoat whom to blame. Similarly to this case, were those cases, which happened a few years before, with John Rusnak, in Allied Irish Bank, Nick Leeson in Barings Bank, Robert Citron in Orange County and Yasou Hamanaka in Sumitomo Corporation to mention a few. It seemed that these men acted in a vacuum and brought down the companies they worked for single-handedly. De Bondt & Thaler (1995) argue that "Regret is the feeling of ex-post remorse about a decision that led to a bad outcome" (De Bondt & Thaler, 1995). They argue that one way for decision makers to avoid regret is to transfer the responsibility of certain decisions onto someone else (De Bondt & Thaler, 1995).

Durkheim in his 1899 paper on anti-Semitism argues that "When society suffers, it needs someone to blame, someone upon whom to avenge itself for its disappointments; and those persons whom opinion already disfavors are naturally singled out for this role." Durkheim was writing this in the aftermath of the Dreyfus Affair which occurred in the late 1890s. After the trial, which found Alfred Dreyfus guilty of selling military secrets to the Germans, he claims that, "people finally knew whom to blame for the economic troubles and the moral distress through which they lived." (Durkheim, 1899/2008)

Also as Levitt, (1997) put it "There have been too many instances of so-called 'rogue traders' causing millions, or even billions of dollars in losses--not to mention the demise of some well-known institutions. In his view, there would be no 'rogue traders' if every firm had good internal controls and risk management systems" (Levitt, 1997). Bezzina and Grima highlight that not enough importance is given to sociological factors and cultural trends when devising internal controls to manage derivative use (Bezzina and Grima, 2011; Grima, 2012; Gorina, 2016; Denisova et al., 2017).

This repetition or so called deja-vu type problems and the involvement of scapegoats and derivatives, instigates the need to look deeper into the financial crisis and these large losses, or rather some of the incidents that led to it/them, from a sociological perspective. Since it seems that the perspectives looked at so far have not yet addressed or identified the underlying problem and an a priori resolution to such problems.

With the current study the authors' aim to determine predictors of derivative mishandling through level of experience with derivatives, level of education, anomic behaviour, introversion, environmental influence and competitiveness.

2. Literature Review

2.1 Derivative Mishandling and Agency Theory

Derivatives, have been blamed for causing the collapse of and large losses made by so many multimillion dollar companies around the world. Hull defines them as "financial instruments whose value depends on (or derives from) the values of other, more basic, underling variables". …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.