Are Meritless Whistleblower Complaints Detrimental?

49 Pages Posted: 27 Aug 2023 Last revised: 16 Feb 2024

See all articles by Yangyang Fan

Yangyang Fan

Hong Kong Polytechnic University - School of Accounting and Finance

Gilles Hilary

Georgetown University - Department of Accounting and Business Law

Mark (Shuai) Ma

University of Pittsburgh - Katz Graduate School of Business

Date Written: August 22, 2023

Abstract

There are significant public concerns that many whistleblowing allegations of financial misconduct are meritless and hurt shareholder value by squandering managerial effort and corporate resources. Using a sample of whistleblowing cases filed under Section 806 of the Sarbanes and Oxley Act, we find no evidence that meritless allegations of financial misconduct negatively affect share prices. Instead, we uncover that these allegations prompt heightened board and auditor efforts. Moreover, corporate culture related to integrity and respect for employees improves after these allegations. Furthermore, the positive spillover effect extends to the financial reporting quality of other firms connected through common directors and auditors. Overall, our study suggests that meritless allegations of financial misconduct by employees do not hurt shareholder value and, in fact, create a significant social benefit in terms of financial reporting quality.

Keywords: Meritless Whistleblower Complaints, Shareholder Welfare, Deterrence Effect, Managerial Efforts, Financial Restatements.

Suggested Citation

Fan, Yangyang and Hilary, Gilles and Ma, Mark (Shuai), Are Meritless Whistleblower Complaints Detrimental? (August 22, 2023). Georgetown McDonough School of Business Research Paper No. 4548362, Available at SSRN: https://ssrn.com/abstract=4548362

Yangyang Fan

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Gilles Hilary

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

Mark (Shuai) Ma (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

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