Internal whistleblowing and stock price crash risk |
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| Affiliation: | 1. School of Finance and Accounting, Fuzhou University of International Studies and Trade, China;2. DeGroote School of Business, McMaster University, Canada;3. Xiamen National Accounting Institute, China;4. School of Management, Xiamen University, China;1. School of International Economics and Trade, Nanjing University of Finance and Economics, Nanjing, China;2. Rotman Commerce, University of Toronto, Toronto, Canada;3. SHU-UTS SILC Business School, Shanghai University, 99 Shangda Road, Shanghai, China;1. School of Statistics and Mathematics, Shandong University of Finance and Economics, Jinan, China;2. School of Urban and Regional Science, Shanghai University of Finance and Economics, Shanghai, China;3. Department of Applied Finance, Macquarie University, Sydney, Australia;4. School of Geography, Earth and Environmental Sciences, University of Birmingham, Birmingham, UK;1. Smurfit Graduate Business School, University College Dublin Blackrock, Ireland;2. Platform on Sustainable Finance, DG FISMA, European Commission, Belgium;3. University of Essex, Colchester, UK |
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| Abstract: | We investigate the impact of internal whistleblowing on stock price crash risk in China. We expect that internal whistleblowing plays a crucial role in preventing firms from misconducting, which would result in a lower stock price crash risk. Consistent with this conjecture, the empirical evidence negatively correlates internal whistleblowing and stock price crash risk. Our results remain robust when adopting the instrumental variable, propensity matching method, and Heckman's two-stage model. Path analysis shows that internal whistleblowing lowers the crash risk by reducing firms' accounting violations and executives' frauds. The effect is more pronounced in firms with a positive organizational environment and non-state-owned firms. Overall, the study contributes to the emerging literature on the governance role of whistleblowing. |
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