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Who Blows the Whistle on Corporate Fraud?

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  • ALEXANDER DYCK
  • ADAIR MORSE
  • LUIGI ZINGALES

Abstract

To identify the most effective mechanisms for detecting corporate fraud, we study all reported fraud cases in large U.S. companies between 1996 and 2004. We find that fraud detection does not rely on standard corporate governance actors (investors, SEC, and auditors), but rather takes a village, including several nontraditional players (employees, media, and industry regulators). Differences in access to information, as well as monetary and reputational incentives, help to explain this pattern. In‐depth analyses suggest that reputational incentives in general are weak, except for journalists in large cases. By contrast, monetary incentives help explain employee whistleblowing.

Suggested Citation

  • Alexander Dyck & Adair Morse & Luigi Zingales, 2010. "Who Blows the Whistle on Corporate Fraud?," Journal of Finance, American Finance Association, vol. 65(6), pages 2213-2253, December.
  • Handle: RePEc:bla:jfinan:v:65:y:2010:i:6:p:2213-2253
    DOI: 10.1111/j.1540-6261.2010.01614.x
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    File URL: https://doi.org/10.1111/j.1540-6261.2010.01614.x
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    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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