Evidence on the Use and Efficacy of Internal Whistleblowing Systems

55 Pages Posted: 29 Oct 2018 Last revised: 1 May 2019

See all articles by Stephen Stubben

Stephen Stubben

University of Utah

Kyle T. Welch

George Washington University; George Washington University - Department of Accountancy

Date Written: April 29, 2019

Abstract

Using a proprietary dataset from a provider of internal whistleblowing (WB) systems, we analyze nearly two million internal reports submitted to over one thousand publicly traded U.S. firms. We provide descriptive statistics, over time and across report types, on the individuals making reports, the amount and summary details of information provided, how extensively management reviews reports, the amount of time until reviews were completed, and the outcome of these reviews. Further, we examine the characteristics of firms with more actively used 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. Firms with more actively used systems (i.e., more employees participate in reporting, employees provide more information in reports, and management reviews reports more frequently) are typically more profitable, more geographically disperse, and have fewer employees. Firms experiencing rapid growth, with evidence of earnings management, and with weaker corporate governance are less likely to have actively used internal WB systems. Further, we find that higher internal WB report volume is associated with fewer and lower amounts of government fines and material lawsuits. These findings are consistent with internal WB reports being a resource that deters against inappropriate behavior and helps management identify and address concerns before they become more costly to the firm.

Keywords: whistleblowing, employee hotlines, corporate governance, Sarbanes-Oxley 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 (April 29, 2019). 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 ( email )

School of Business and Public Management
Washington, DC 20052
United States

HOME PAGE: http://https://business.gwu.edu/kyle-welch

George Washington University - Department of Accountancy ( email )

School of Business and Public Management
Washington, DC 20052
United States

HOME PAGE: http://https://business.gwu.edu/kyle-welch

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