Coming Clean and Cleaning Up: Is Voluntary Self-Reporting a Signal of Effective Self-Policing?

Abstract:     
Administrative agencies are increasingly establishing voluntary self-reporting programs, both as an investigative tool and as a way of encouraging regulated firms to police themselves. Effective self-policing is critical to contemporary regulatory designs, which rely heavily on regulated entities to monitor and assure their own regulatory compliance. We investigate whether self-reporting, or the voluntary disclosure of legal violations, can serve as a reliable signal of the discloser’s effective self-policing efforts, which might warrant a reduction in regulatory scrutiny. We find that voluntary disclosures are associated with improvements in regulatory compliance and environmental performance, indicating that self-reporting is associated with effective self-policing. In addition, we find evidence that regulators subsequently reduced their scrutiny over voluntary disclosers, which suggests that self-reporting can help regulators economize government enforcement resources and develop cooperative relationships with firms that are committed to self-policing.

Keywords: Self-reporting, Self-policing, Self-regulation, Voluntary Programs, Environmental Regulation, Environmental Performance, Pollution, Audits, Signaling

Working Paper Series