Did the Dodd-Frank Whistleblower Provision Deter Accounting Fraud?

Journal of Accounting Research, Forthcoming

60 Pages Posted: 11 Jan 2022 Last revised: 24 Jan 2022

See all articles by Philip G. Berger

Philip G. Berger

University of Chicago - Booth School of Business

Heemin Lee

Stan Ross Department of Accountancy, Zicklin School of Business, Baruch College, City University of New York

Date Written: December 28, 2021

Abstract

We examine the deterrence effect of the Dodd-Frank whistleblower provision on accounting fraud. To facilitate causal inference, we use state False Claims Acts (FCAs), under which whistleblowing about accounting fraud at a firm invested in by a state's pension fund can result in monetary rewards from that state’s government. We divide our sample into firms exposed and not exposed to whistleblowing risk from a state FCA during the 2008 – 2010 period that preceded the 2011 SEC implementation of the Dodd-Frank whistleblowing provision. We hypothesize that firms already exposed to a state FCA whistleblower law are less affected by the Dodd-Frank whistleblower provision. Using the companies exposed to a state FCA as control firms in our Dodd-Frank tests, the remaining firms constitute the treatment sample. We find that exposure to Dodd-Frank reduces the likelihood of accounting fraud of treatment firms by 12% to 22% relative to control firms, but do not find that it affects audit fees.

Keywords: Whistleblowing; Fraud; Dodd-Frank Act; False Claims Act

JEL Classification: G34; G38; K22; M41; M48

Suggested Citation

Berger, Philip G. and Lee, Heemin, Did the Dodd-Frank Whistleblower Provision Deter Accounting Fraud? (December 28, 2021). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3059231 or http://dx.doi.org/10.2139/ssrn.3059231

Philip G. Berger

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-8687 (Phone)
773-834-4585 (Fax)

Heemin Lee (Contact Author)

Stan Ross Department of Accountancy, Zicklin School of Business, Baruch College, City University of New York ( email )

55 Lexington Ave
New York, NY 10010
United States
6463123164 (Phone)

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