AAA Spark Meeting of Regions

The Effect of Whistleblowing on Peer Firms’ Conditional Conservatism

• In Event: CSR: Institutional Monitoring and Earnings Quality

Abstract

Extant literature demonstrates that whistleblowing allegations are associated with changes in the financial reporting of whistleblowing target firms. This paper provides compelling evidence that whistleblowing allegations also impact peer firms’ conditional conservatism. More specifically, I find that industry peers exhibit greater conditional conservatism in the three years following a whistleblowing allegation. I find the effect is to be strongest when the whistleblowing allegations are against large firms and when the allegations relate specifically to accounting fraud and peer firms exhibit greater conditional conservatism to a greater magnitude after the adoption of
the State False Claims Acts (FCAs). Whistleblowing allegations have greater impact on peer firms when peer firms share the same auditor and common board directors with the whistleblowing allegation firms. The findings are robust to an array of estimation methods, alternative measurements, and industry peer definitions.

Author

• Fuzhao Zhou, State University of New York College at Brockport