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

42 Pages Posted: 29 Jul 2009

See all articles by Michael W. Toffel

Michael W. Toffel

Harvard Business School

Jodi L. Short

University of California Hastings College of the Law

Date Written: July 29, 2009

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

Suggested Citation

Toffel, Michael W. and Short, Jodi L., Coming Clean and Cleaning Up: Is Voluntary Self-Reporting a Signal of Effective Self-Policing? (July 29, 2009). Harvard Business School Technology & Operations Mgt. Unit Research Paper No. 08-098. Available at SSRN: https://ssrn.com/abstract=1440760

Michael W. Toffel

Harvard Business School ( email )

Boston, MA 02163
United States
617.384.8043 (Phone)

Jodi L. Short (Contact Author)

University of California Hastings College of the Law ( email )

200 McAllister Street
San Francisco, CA 94102
United States

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