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abstract

A total of 83 experienced audit committee members participated in an experiment in which they evaluated the credibility of and allocated investigative resources towards a whistle-blowing allegation of financial reporting malfeasance by corporate executive officers. We manipulated whether the whistle-blowing allegation was made through anonymous or non-anonymous channels and whether the allegation posed a relatively high or low threat to the personal reputation of the audit committee member who was charged with investigating the allegation. Results indicate that the participating audit committee members attributed lower credibility and allocated fewer investigatory resources when the whistle-blowing report was received through an anonymous versus non-anonymous channel, and when the allegation posed a relatively high versus low level of reputation threat. While the Sarbanes–Oxley Act of 2002 requires audit committees of publicly traded firms to provide an anonymous whistle-blowing channel to employees, our findings suggest disturbing unintended consequences of such regulation; specifically, audit committee members might fail to sufficiently investigate whistle-blowing allegations received through anonymous whistle-blowing channels, particularly if the allegation poses a personal reputation threat.