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Whistle-Blowing and Incentives in Firms

Author

Listed:
  • Guido Friebel

    (Goethe-Universität Frankfurt am Main)

  • Sergei Guriev

Abstract

Whistle-blowing is an important mechanism of corporate governance. We show that whistle-blowing has negative effects on productive efficiency by undermining the incentives within a corporate hierarchy. In our model, a top manager intends to overreport earnings; a division manager may have evidence about the intended overreporting. We show that the division manager is more likely to have such evidence when the performance of his own division is low. Top management may offer a bribe to prevent the manager from blowing the whistle. This provides the division manager with an additional payoff when his division's output is low. Therefore, potential whistle-blowing undermines the division manager's incentives to exert effort, which results in a less efficient outcome.

Suggested Citation

  • Guido Friebel & Sergei Guriev, 2012. "Whistle-Blowing and Incentives in Firms," Post-Print hal-03399554, HAL.
    • Handle: RePEc:hal:journl:hal-03399554
    DOI: 10.1111/j.1530-9134.2012.00354.x
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    References listed on IDEAS

    as
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    Cited by:

    1. Mechtenberg, Lydia & Muehlheusser, Gerd & Roider, Andreas, 2020. "Whistleblower protection: Theory and experimental evidence," European Economic Review, Elsevier, vol. 126(C).
    2. Paolo Buccirossi & Giovanni Immordino & Giancarlo Spagnolo, 2021. "Whistleblower rewards, false reports, and corporate fraud," European Journal of Law and Economics, Springer, vol. 51(3), pages 411-431, June.
    3. Mujeeb Saif Mohsen Al-Absy & Ku Nor Izah Ku Ismail & Sitraselvi Chandren, 2019. "Corporate Governance Mechanisms, Whistle-Blowing Policy and Real Earnings Management," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(6), pages 265-282, October.
    4. Jeffrey V. Butler & Danila Serra & Giancarlo Spagnolo, 2017. "Motivating Whistleblowers," CEIS Research Paper 419, Tor Vergata University, CEIS, revised 12 Dec 2017.
    5. Daniel Herold, 2017. "The Impact of Incentive Pay on Corporate Crime," MAGKS Papers on Economics 201752, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    6. Jeffrey V. Butler & Danila Serra & Giancarlo Spagnolo, 2020. "Motivating Whistleblowers," Management Science, INFORMS, vol. 66(2), pages 605-621, February.
    7. Hengky Latan & Charbel Jose Chiappetta Jabbour & Ana Beatriz Lopes de Sousa Jabbour, 2021. "Social Media as a Form of Virtual Whistleblowing: Empirical Evidence for Elements of the Diamond Model," Journal of Business Ethics, Springer, vol. 174(3), pages 529-548, December.

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