The Effect of Financial Incentive Framing and Descriptive Norms on Internal Whistleblowing

38 Pages Posted: 20 Aug 2012 Last revised: 18 Jun 2014

See all articles by Clara Xiaoling Chen

Clara Xiaoling Chen

University of Illinois at Urbana-Champaign; University of Illinois at Urbana-Champaign - Department of Accountancy

Jennifer E. Nichol

Northeastern University

Flora H. Zhou

Bentley University

Date Written: November 30, 2012

Abstract

Recent regulations promoting external whistleblowing heighten the need for internal whistleblowing programs to encourage whistleblowing within firms. However, it remains controversial how firms should provide financial incentives for internal whistleblowing. Drawing on social psychology research, we argue that framing financial incentives for internal whistleblowing as a penalty is more effective at communicating injunctive norms than framing them as a reward, and that consistency between injunctive norms and descriptive norms leads to greater injunctive norm salience, which, in turn, results in greater internal whistleblowing. We test our hypotheses experimentally using a 2x2 between-subjects design that manipulates the framing of financial incentives promoting whistleblowing (Reward vs. Penalty) and social norms supporting or opposing whistleblowing (Norms For vs. Norms Against). As predicted, we find an ordinal interaction effect between financial incentive framing and descriptive norms such that descriptive norms for whistleblowing will increase internal whistleblowing to a greater extent when financial incentives for whistleblowing are framed as penalties than when these incentives are framed as rewards.

Keywords: incentives, peer reporting, internal whistleblowing, norms, rewards, penalties

JEL Classification: M40, M41, M52

Suggested Citation

Chen, Clara Xiaoling and Chen, Clara Xiaoling and Nichol, Jennifer and Zhou, Flora H., The Effect of Financial Incentive Framing and Descriptive Norms on Internal Whistleblowing (November 30, 2012). AAA 2013 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: https://ssrn.com/abstract=2132852 or http://dx.doi.org/10.2139/ssrn.2132852

Clara Xiaoling Chen (Contact Author)

University of Illinois at Urbana-Champaign ( email )

389 Wohlers Hall
1206 S. Sixth Street
Champaign, IL 61820
United States
217-244-3953 (Phone)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Jennifer Nichol

Northeastern University ( email )

360 Huntington Ave.
Boston, MA 02115
United States

Flora H. Zhou

Bentley University ( email )

175 Forest Street
Waltham, MA 02145
United States

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