A new study by Jaron H. Wilde, a University of Iowa accounting professor, shows that companies experience a significant reduction in financial wrongdoing after undergoing investigations prompted by whistleblower reports. Wilde’s paper, titled “The Deterrent Effect of Employee Whistleblowing on Firms’ Financial Misreporting and Tax Aggressiveness,” will be published in The Accounting Review in December 2017. The study provides empirical proof that U.S. whistleblower laws accomplish their goal of not only protecting those who speak out against past wrongs but also deterring wrongdoing in the future.
To conduct the study, Wilde requested records from 2003-2010 regarding employee retaliation cases before the Occupational Safety and Health Administration, which oversees retaliation clams under Sarbanes-Oxley. In total, Wilde reviewed cases involving over 300 public companies and documented changes in their financial reporting before and after whistleblower allegations were made against them.
Wilde found that firms faced with a whistleblower investigation exhibited “significant decreases in financial misreporting and tax aggressiveness, compared with control firms.” On average, this decrease in suspect behavior persisted for at least two years after the whistleblowers reported their concerns.
Wilde’s research comes at an important time. Given the recent surge in whistleblower protections and bounty programs, lawmakers and enforcement staff should be heartened by this proof that whistleblower protections and rewards are producing their desired effects. Moreover, the study provides a powerful counter to those seeking to undermine these valuable programs.
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