Whistle-Blowing on Fraud: Why and When Do Companies Retaliate Against Whistle-Blowers?

• In Event: Emotions and Moral Judgments, Genealogy of Fraud, Mindfulness and Professional Skepticism, Whistleblowing

Abstract

The purpose of this study is to examine why and when management retaliate against whistle-blowers. Drawing on routine activity theory, we examine the motivations behind management’s retaliation, the type of fraud report that makes a whistle-blower a suitable target for retaliation, and corporate governance mechanisms that can insulate whistle-blowers from retaliation. To address this research question, we employ a mixed-method design by combining both qualitative and quantitative data from press reports. Three motivations for management to retaliate are commonly observed - to silence, discredit or punish the whistle-blower. We also find that whistle-blowers who report on alleged fraudulent financial reporting are more likely to be targets of retaliation by management. An analysis suggests that whistle-blowers are insulated from retaliation when a company provides a corporate whistle-blowing protection policy or has better governance as indicated by engaging a Big 4 auditor, having a smaller board size and a greater proportion of outside directors.

Authors

• Gladys Lee, Australian National University

• Neil L Fargher, Australian National University