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

Andrew C. Call, Simi Kedia, Shivaram Rajgopal

Research output: Contribution to journalArticlepeer-review

19 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)277-300
Number of pages24
JournalJournal of Accounting and Economics
Volume62
Issue number2-3
DOIs
StatePublished - Nov 1 2016

Keywords

  • Misreporting
  • Stock options
  • Whistle-blowing

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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