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Journal of Accounting and Economics Vol. 62 No. 2-3 2016

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

Andrew C. Call1; Simi Kedia2,3; Shivaram Rajgopal4,5

1 Arizona State University · 2 Rutgers, The State University of New Jersey · 3 Rutgers Sexual and Reproductive Health and Rights · 4 Columbia Business School, 604 Uris Hall, 3022 Broadway, New York, NY 10027, USA · 5 Columbia Business School

Abstract

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.

DOI
10.1016/j.jacceco.2016.06.003
Volume
62
Issue
2-3
Pages
277-300
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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