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Whistleblower Rewards, False Reports, and Corporate Fraud

Author

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  • Buccirossi, Paolo
  • Immordino, Giovanni
  • Spagnolo, Giancarlo

Abstract

It is often claimed that rewards for whistleblowers lead to fraudulent reports, but for several US programs this has not been a major problem. We model the interaction between rewards for whistleblowers, sanctions against fraudulent reporting, judicial errors and standards of proof in the court case on a whistleblower's allegations and the possible follow-up for fraudulent allegations. Balancing whistleblower rewards, sanctions against fraudulent reports, and courts' standards of proof is essential for these policies to succeed. When the risk of retaliation is severe, larger rewards are needed and so are tougher sanctions against fraudulent reports. The precision of the legal system must be sufficiently high, hence these programs are not viable in weak institution environments, where protection is imperfect and court precision low, or where sanctions against false reporting are mild. Internal reporting channels may interfere with external ones in unexpected ways.

Suggested Citation

  • Buccirossi, Paolo & Immordino, Giovanni & Spagnolo, Giancarlo, 2017. "Whistleblower Rewards, False Reports, and Corporate Fraud," CEPR Discussion Papers 12260, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12260
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    References listed on IDEAS

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    1. Stikeleather, Bryan R., 2016. "When do employers benefit from offering workers a financial reward for reporting internal misconduct?," Accounting, Organizations and Society, Elsevier, vol. 52(C), pages 1-14.
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    More about this item

    Keywords

    Corporate Fraud; False allegations; Judicial errors; Standard of proof; Whistleblowers rewards;

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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