Blinded by Incentives: Do Rank and File Stock Options Deter Employee Whistle-Blowing?

43 Pages Posted: 17 Mar 2012

See all articles by Andrew C. Call

Andrew C. Call

Arizona State University (ASU) - School of Accountancy

Simi Kedia

Rutgers Business School

Shivaram Rajgopal

Columbia Business School

Date Written: Febraury 15, 2012

Abstract

The Dodd-Frank Act (2010) seeks to encourage whistle-blowing by offering financial rewards to those who bring corporate fraud to light. Firms can counter this legislative action by giving their employees incentives, via rank and file stock options, to remain quiet about financial irregularities. We examine two samples of firms accused of committing financial reporting violations and find that those that grant more rank and file stock options are more likely to avoid employee whistle-blowing, consistent with our hypothesis. Moreover, firms involved in financial reporting violations grant more rank and file stock options relative to a control sample of non-violation firms, pointing to their efforts to discourage whistle-blowing. An investigation into firms’ use of broad based cash profit-sharing programs yields similar though weaker results.

Suggested Citation

Call, Andrew C. and Kedia, Simi and Rajgopal, Shivaram, Blinded by Incentives: Do Rank and File Stock Options Deter Employee Whistle-Blowing? (Febraury 15, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2023596 or http://dx.doi.org/10.2139/ssrn.2023596

Andrew C. Call

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Simi Kedia (Contact Author)

Rutgers Business School ( email )

117 Levin
94 Rockafellar Road
Piscataway, NJ
United States
8484454195 (Phone)

Shivaram Rajgopal

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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