Article2017

The Deterrent Effect of Employee Whistleblowing on Firms' Financial Misreporting and Tax Aggressiveness

318 citations0/0 files storedThe Accounting Review

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Auditing, Earnings Management, Governance Ethics in Business and Education Corporate Governance and Financial Management

Abstract

ABSTRACT U.S. laws provide explicit whistleblower protections and direct regulators to adopt ambitious programs to reward whistleblowing. However, there is limited evidence on whether employee whistleblowing deters financial misreporting and tax aggressiveness. Using a sample of employee whistleblower cases obtained from the U.S. government, I provide evidence that firms subject to whistleblowing allegations exhibit significant decreases in financial misreporting and tax aggressiveness, compared with control firms. I find that this deterrent effect persists for at least two years beyond the year of the allegation. JEL Classifications: H25; M41; M48. Data Availability: All data are available from public sources identified in the paper.

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1968Crime and Punishment: An Economic Approach 2008Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 2005Performance matched discretionary accrual measures 1995Detecting Earnings Management.1997Industry costs of equity 2010New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index 1972Income tax evasion: a theoretical analysis 2002Audit committee, board of director characteristics, and earnings management

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