Evidence on the Use and Efficacy of Internal Whistleblowing Systems

44 Pages Posted: 29 Oct 2018 Last revised: 5 Dec 2018

See all articles by Stephen Stubben

Stephen Stubben

University of Utah

Kyle T. Welch

George Washington University - School of Business

Date Written: December 1, 2018


Using a proprietary dataset from the world’s largest provider of internal whistleblowing (WB) systems, also known as internal reporting systems, we examine the characteristics of firms that more actively utilize these systems. Although internal WB systems have been required for public firms in the U.S. since the Sarbanes-Oxley Act, we find substantial variation in their use. While larger firms tend to have more reports, firms that more actively use their systems (i.e., firms where more employees participate in reporting, where employees provide more information in their reports, and where management more frequently follows up on reports) are typically more profitable, older, and have fewer employees. Firms experiencing rapid growth, with evidence of earnings management, with weaker corporate governance, and with weaker internal controls are less likely to actively use their internal WB systems. Further, we find that more active use of internal WB systems is associated with fewer material lawsuits being filed against the firm and smaller settlement amounts. These findings are consistent with internal WB reports being a resource that helps management identify and address concerns before they become more costly to the firm, which is relevant to regulators as provisions in the Dodd-Frank Act incentivize WB reports directly to regulators, bypassing management.

Keywords: whistleblowing, employee hotlines, corporate governance, Sarbanes-Oxley Act, Dodd-Frank Act

JEL Classification: G38, G34, M48, M54

Suggested Citation

Stubben, Stephen and Welch, Kyle T., Evidence on the Use and Efficacy of Internal Whistleblowing Systems (December 1, 2018). Available at SSRN: https://ssrn.com/abstract=3273589 or http://dx.doi.org/10.2139/ssrn.3273589

Stephen Stubben (Contact Author)

University of Utah ( email )

1655 E. Campus Center
Salt Lake City, UT 84112
United States

Kyle T. Welch

George Washington University - School of Business ( email )

Washington, DC 20052
United States

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics