Who Blows the Whistle on Corporate Fraud?

44 Pages Posted: 15 Mar 2006 Last revised: 14 Apr 2011

I. J. Alexander Dyck

University of Toronto - Rotman School of Management

Adair Morse

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: October 1, 2008

Abstract

To identify the most effective mechanisms for detecting corporate fraud we study in depth all reported fraud cases in large U.S. companies between 1996 and 2004. We find that fraud detection does not rely on obvious actors (investors, SEC, and auditors), but takes a village of several non-traditional players (employees, media, and industry regulators). Having access to information or monetary rewards has a significant impact on the probability a stakeholder becomes a whistleblower. Reputational incentives do not work as well. Yet, after SOX auditors' reputation pays off in new client business, increasing their willingness to reveal fraud.

Keywords: Whistleblowers, Corporate Scandals, Corporate Governance, Fraud, Gatekeepers

JEL Classification: G30, K20

Suggested Citation

Dyck, I. J. Alexander and Morse, Adair and Zingales, Luigi, Who Blows the Whistle on Corporate Fraud? (October 1, 2008). AFA 2007 Chicago Meetings Paper; Chicago GSB Research Paper No. 08-22; CRSP Working Paper No. 618; 1st Annual Conference on Empirical Legal Studies, Forthcoming; ECGI - Finance Working Paper No. 156/2007. Available at SSRN: https://ssrn.com/abstract=891482 or http://dx.doi.org/10.2139/ssrn.891482

I.J. Alexander Dyck

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S 3E6
Canada
416-946-0819 (Phone)

Adair Morse (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Luigi Zingales

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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