Skip to main content
SpringerLink
Log in

Companies’ Use of Whistle-Blowing to Detect Fraud: An Examination of Corporate Whistle-Blowing Policies

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

In order to provide an effective whistle-blowing system, it is expected that companies would provide employees with a high level of disclosure regarding the whistle-blowing process. This study investigates variation in the extent of whistle-blowing disclosures. As a measure of whistle-blowing implementation, this study further examines the provision of a hotline channel. The results suggest that the extent of whistle-blowing disclosures is positively associated with the permissibility of anonymous reporting and organisational support for whistle-blowing, the number of external directors on the audit committee, and the existence of concentrated shareholdings. The mere existence of whistle-blowing disclosures could simply be symbolic. The findings also indicate a greater likelihood of the provision of hotlines when companies are larger in size, have a higher level of current inventory, are cross-listed in the US, and permit anonymous reporting.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Combined Code on Corporate Governance, 2003.

  2. Tabaksblat Code, 2005.

  3. Code on Corporate Governance, 2004.

  4. Section 9.4 AAA of the Corporations Act 2001.

  5. There is also evidence from surveys that whistle-blowing systems have not been comprehensively implemented in all Australian companies (KPMG 2009; ACFE 2010).

  6. For a more complete review of accounting research relevant to whistle-blowing, refer to Bedard et al. (2008).

  7. Bowen et al. (2010) provide empirical evidence that firms subject to external financial whistle-blowing events experienced lower market-adjusted 5-day stock price reaction, more earnings restatements and shareholder lawsuits, and more negative future operating performance and stock return performance.

  8. The whistle-blowing policies of the next 100 largest companies were also examined, and there were significantly less disclosures provided by these companies. As company size appeared to be the dominant determinant of non-disclosure the sample was restricted to the largest companies with a viable choice to implement and disclose a whistle-blowing system. Alternately using companies from only the larger S&P/ASX 100 index results in similar coefficient estimates, but are not statistically different from zero in this smaller sample.

  9. The sample is larger than Hassink et al. (2007) which examined the whistle-blowing policies of 56 European companies and Singh (2006) which analysed 80 ethical codes of Canadian companies. The sample is slightly smaller than Beneish and Chatov’s (1993) study of 160 firms, and Calderón-Cuadrado et al. (2009) sample of 153 transnational companies.

  10. A dollar is added to current inventory before taking the natural log where the value of inventory is zero.

  11. The pseudo R 2 presented in the analysis is the Cox and Snell R 2. The Nagelkerke R 2 is 59.9 %.

  12. We cannot tell whether some companies have whistle-blower policies not documented on their corporate website. Some companies were contacted but were not willing to provide further information.

References

  • ACFE. (2010). Report to the nation on occupational fraud and abuse. Austin, TX: Association of Certified Fraud Examiners.

    Google Scholar 

  • Adams, J. S., Tashchian, A., & Shore, T. H. (2001). Codes of ethics as signals for ethical behavior. Journal of Business Ethics, 29, 199–211.

    Article  Google Scholar 

  • Appelbaum, S. H., Cottin, J., Paré, R., & Shapiro, B. T. (2006). Employee theft: From behavioural causation and prevention to managerial detection and remedies. Journal of American Academy of Business, 9, 175–182.

    Google Scholar 

  • Asgary, N., & Mitschow, M. C. (2002). Toward a model for international business ethics. Journal of Business Ethics, 36, 239–246.

    Article  Google Scholar 

  • Ashbaugh-Skaife, H., Collins, D. W., & Kinney, W. R, Jr. (2007). The discovery and reporting of internal control deficiencies prior to sox-mandated audits. Journal of Accounting and Economics, 44, 166–192.

    Article  Google Scholar 

  • Barnett, T., Cochran, D. S., & Taylor, G. S. (1993). The internal disclosure policies of private-sector employers: An initial look at their relationship to employee whistle-blowing. Journal of Business Ethics, 12, 127–136.

    Article  Google Scholar 

  • Bedard, J. C., Deis, D. R., Curtis, M. B., & Jenkins, J. G. (2008). Risk monitoring and control in audit firms: A research synthesis. Auditing: A Journal of Practice and Theory, 27, 187–218.

    Article  Google Scholar 

  • Beneish, M. D., & Chatov, R. (1993). Corporate codes of conduct: Economic determinants and legal implications for independent auditors. Journal of Accounting and Public Policy, 12, 3–35.

    Article  Google Scholar 

  • Bierstaker, J. L., Brody, R. G., & Pacini, C. (2006). Accountants’ perceptions regarding fraud detection and prevention methods. Managerial Auditing Journal, 21, 520–535.

    Article  Google Scholar 

  • Bjørkelo, B., Einarsen, S., Nielsen, M. B., & Matthiesen, S. B. (2010). Silence is golden? Characteristics and experiences of self-reported whistle-blowers. European Journal of Work and Organizational Psychology, 20, 206–238.

    Article  Google Scholar 

  • Bowden, P., & Smythe, V. (2009). Contemporary issues in international corporate governance (1st ed.). Victoria: Tilde University Press.

    Google Scholar 

  • Bowen, R. M., Andrew, C. C., & Rajgopal, S. (2010). Whistle-blowing: Target firm characteristics and economic consequences. The Accounting Review, 85, 1239–1271.

    Article  Google Scholar 

  • Brown, A. J. (2009). Whistle-blowing legislation in Queensland, the agenda for reform. Final report to the Queensland Government of the Australian Research Council Linkage Project: Whistling while they work: Enhancing the theory and practice of internal witness management in public sector organisation. Griffith University.

  • Calderón-Cuadrado, R., Álvarez-Arce, J. L., Rodríguez-Tejedo, I., & Salvatierra, S. (2009). “Ethics hotlines” in transnational companies: A comparative study. Journal of Business Ethics, 88, 199–210.

    Article  Google Scholar 

  • Chung, J., Monroe, G. S., & Thorne, L. (2004). An examination of factors affecting external and internal whistle-blowing by auditors. Working paper, York University, Toronto.

  • Clarkson, P., Van Bueren, A. L., & Walker, J. (2006). Chief executive officer remuneration disclosure quality: Corporate responses to an evolving disclosure environment. Accounting and Finance, 46, 771–796.

    Article  Google Scholar 

  • Coram, P., Ferguson, C., & Moroney, R. (2008). Internal audit, alternative internal audit structures and the level of misappropriation of assets fraud. Accounting and Finance, 48, 543–559.

    Google Scholar 

  • Davidson, R., Goodwin-Stewart, J., & Kent, P. (2005). Internal governance structures and earnings management. Accounting and Finance, 45, 241–267.

    Article  Google Scholar 

  • Dyck, A., Morse, A., & Zingales, L. (2010). Who blows the whistle on corporate fraud? The Journal of Finance, 65, 2213–2253.

    Article  Google Scholar 

  • Hassink, H., de Vries, M., & Bollen, L. (2007). A content analysis of whistle-blowing policies of leading European companies. Journal of Business Ethics, 75, 25–44.

    Article  Google Scholar 

  • Hillison, W., Pacini, C., & Sinason, D. (1999). The internal auditor as fraud-buster. Managerial Auditing Journal, 14, 351–363.

    Article  Google Scholar 

  • Holder-Webb, L., Cohen, J., Nath, L., & Wood, D. (2008). A survey of governance disclosures among US firms. Journal of Business Ethics, 83, 543–563.

    Article  Google Scholar 

  • Holtfreter, K. (2005). Fraud in US organisations: An examination of control mechanisms. Journal of Financial Crime, 12, 88–95.

    Article  Google Scholar 

  • Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360.

    Article  Google Scholar 

  • Kaplan, S. E., Pope, K. R., & Samuels, J. A. (2010). The effect of social confrontation on individuals’ intentions to internally report fraud. Behavioral Research in Accounting, 22, 51–67.

    Article  Google Scholar 

  • KPMG. (2009). KPMG fraud survey 2008. Australia: KPMG.

    Google Scholar 

  • Lang, M., & Lundholm, R. (1993). Cross-sectional determinants of analyst ratings of corporate disclosures. Journal of Accounting Research, 31, 246–271.

    Article  Google Scholar 

  • McDonald, G. (2000). Business ethics: Practical proposals for organisations. Journal of Business Ethics, 25, 169–184.

    Article  Google Scholar 

  • Meek, G. K., Roberts, C. B., & Gray, S. J. (1995). Factors influencing voluntary annual report disclosures by US, UK and continental European multinational corporations. Journal of International Business Studies, 26, 555–572.

    Article  Google Scholar 

  • Mesmer-Magnus, J., & Viswesvaran, C. (2005). Whistle-blowing in organizations: An examination of correlates of whistle-blowing intentions, actions, and retaliation. Journal of Business Ethics, 62, 277–297.

    Article  Google Scholar 

  • Miceli, M. P., Near, J. P., & Dworkin, T. M. (2008). Whistle-blowing in organizations. New York: Routledge.

    Google Scholar 

  • Miceli, M. P., Near, J. P., & Dworkin, T. M. (2009). A word to the wise: How managers and policy-makers can encourage employees to report wrongdoing. Journal of Business Ethics, 86, 379–396.

    Article  Google Scholar 

  • Moberly, R. E. (2006). Sarbanes–Oxley’s structural model to encourage corporate whistle-blowers. Brigham Young Law Review, 5, 1107–1109.

    Google Scholar 

  • Near, J. P., & Miceli, M. P. (1985). Organizational dissidence: The case of whistle-blowing. Journal of Business Ethics, 4, 1–16.

    Article  Google Scholar 

  • Near, J. P., & Miceli, M. P. (1995). Effective whistle-blowing. The Academy of Management Review, 20, 679–708.

    Google Scholar 

  • Oldendorf, I. (2007). Corporate compliance-benefit or burden? Baltic Management Review, 2, 31–40.

    Google Scholar 

  • Pricewaterhousecoopers. (2009). The global economic crime survey: Economic crime in a downturn.

  • Paul, R. J., & Townsend, J. B. (1996). Don’t kill the messenger! Whistle-blowing in America—A review with recommendations. Employee Responsibilities and Rights Journal, 9, 149–161.

    Article  Google Scholar 

  • Salman, F. M., & Carson, E. (2009). The impact of the Sarbanes Oxley Act on the audit fees of Australian listed firms. International Journal of Auditing, 13, 127–140.

    Article  Google Scholar 

  • Sarbanes-Oxley Act. (2002). PL 107-204, 116 Stat 745.

  • Schwartz, M. (2001). The nature of the relationship between corporate codes of ethics and behaviour. Journal of Business Ethics, 32, 247–262.

    Article  Google Scholar 

  • Singh, J. B. (2006). A comparison of the contents of the codes of ethics of Canada’s largest corporations in 1992 and 2003. Journal of Business Ethics, 64, 17–29.

    Article  Google Scholar 

  • Singh, J., Carasco, E., Svensson, G., Wood, G., & Callaghan, M. (2005). A comparative study of the contents of corporate codes of ethics in Australia, Canada and Sweden. Journal of World Business, 40, 91–109.

    Article  Google Scholar 

  • Somers, M. J. (2001). Ethical codes of conduct and organizational context: A study of the relationship between codes of conduct, employee behavior and organizational values. Journal of Business Ethics, 30, 185–195.

    Article  Google Scholar 

  • Standards Australia. (2003). AS 8004-2003 Corporate governance—Whistle-blower protection programs for entities. SAI Global.

  • Weaver, G. R., Trevino, L. K., & Cochran, P. L. (1999). Corporate ethics practices in the mid-1990’s: An empirical study of the fortune 1000. Journal of Business Ethics, 18, 283–294.

    Article  Google Scholar 

  • Worlton, A. E. (2005). EU widens scrutiny of SOX whistle-blower hotlines. Privacy in Focus (Wiley Rein LLP, http://www.wileyrein.com/publications.cfm?sp=articles&newsletter=4&id=2201).

Download references

Acknowledgments

We gratefully acknowledge the very helpful comments from Elizabeth Carson, Gary Monroe, George Tanewski, participants at the AFAANZ 2011 Darwin conference, and the research seminar of the Australian National University and Macquarie University. We also thank Libby Zhang for the provision of cross-listing data.

Author information

Authors and Affiliations

  1. Research School of Business, Australian National University, Canberra, Australia

    Gladys Lee & Neil Fargher

Authors
  1. Gladys Lee
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Neil Fargher
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Gladys Lee.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Lee, G., Fargher, N. Companies’ Use of Whistle-Blowing to Detect Fraud: An Examination of Corporate Whistle-Blowing Policies. J Bus Ethics 114, 283–295 (2013). https://doi.org/10.1007/s10551-012-1348-9

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-012-1348-9

Keywords

Search

Navigation