Did the Dodd-Frank Whistleblower Provision Deter Accounting Fraud?
Journal of Accounting Research, Forthcoming
60 Pages Posted: 11 Jan 2022 Last revised: 24 Jan 2022
Date Written: December 28, 2021
We examine the deterrence effect of the Dodd-Frank whistleblower provision on accounting fraud. To facilitate causal inference, we use state False Claims Acts (FCAs), under which whistleblowing about accounting fraud at a firm invested in by a state's pension fund can result in monetary rewards from that state’s government. We divide our sample into firms exposed and not exposed to whistleblowing risk from a state FCA during the 2008 – 2010 period that preceded the 2011 SEC implementation of the Dodd-Frank whistleblowing provision. We hypothesize that firms already exposed to a state FCA whistleblower law are less affected by the Dodd-Frank whistleblower provision. Using the companies exposed to a state FCA as control firms in our Dodd-Frank tests, the remaining firms constitute the treatment sample. We find that exposure to Dodd-Frank reduces the likelihood of accounting fraud of treatment firms by 12% to 22% relative to control firms, but do not find that it affects audit fees.
Keywords: Whistleblowing; Fraud; Dodd-Frank Act; False Claims Act
JEL Classification: G34; G38; K22; M41; M48
Suggested Citation: Suggested Citation