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Rank and file employees and the discovery of misreporting: The role of stock options

Listed author(s):
  • Call, Andrew C.
  • Kedia, Simi
  • Rajgopal, Shivaram
Registered author(s):

    We find that firms grant more rank and file stock options when involved in financial reporting violations, consistent with managements’ incentives to discourage employee whistle-blowing. Violating firms grant more rank and file options during periods of misreporting relative to control firms and to their own option grants in non-violation years. Moreover, misreporting firms that grant more rank and file options during violation years are more likely to avoid whistle-blowing allegations. Although the Dodd-Frank Act (2010) offers financial rewards to encourage whistle-blowing, our findings suggest that firms discourage whistle-blowing by giving employees incentives to remain quiet about financial irregularities.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0165410116300647
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    Article provided by Elsevier in its journal Journal of Accounting and Economics.

    Volume (Year): 62 (2016)
    Issue (Month): 2 ()
    Pages: 277-300

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    Handle: RePEc:eee:jaecon:v:62:y:2016:i:2:p:277-300
    DOI: 10.1016/j.jacceco.2016.06.003
    Contact details of provider: Web page: http://www.elsevier.com/locate/jae

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