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Who Blows the Whistle on Corporate Fraud?





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    • Dyck is at the University of Toronto; Morse is at the University of Chicago and NBER; and Zingales is at the University of Chicago, NBER, and CEPR. Alexander Dyck thanks the Connaught Fund of the University of Toronto and Luigi Zingales the Center for Research on Security Prices, the Stigler Center, and the Initiative on Global Financial Markets at the University of Chicago for financial support. We would like to thank Alexander Phung, Denrick Bayot, and Victor Xin for truly outstanding research assistantship. We thank John Donohue, Jay Hartzell, Jonathan Karpoff, Andrew Metrick, Shiva Rajgopal, Adriano Rampini, two anonymous referees, Editor, Campbell Harvey, and seminar participants at Harvard Business School, Harvard Law School, Michigan Law School, the University of Pennsylvania, the Duke-UNC Corporate Finance Conference, the NBER Summer Institute, the University of Texas Conference on Empirical Legal Studies, and the American Finance Association Meetings (2007) for helpful comments. We thank Nittai Bergman for sharing his data on employees’ stock options.


To identify the most effective mechanisms for detecting corporate fraud, we study all reported fraud cases in large U.S. companies between 1996 and 2004. We find that fraud detection does not rely on standard corporate governance actors (investors, SEC, and auditors), but rather takes a village, including several nontraditional players (employees, media, and industry regulators). Differences in access to information, as well as monetary and reputational incentives, help to explain this pattern. In-depth analyses suggest that reputational incentives in general are weak, except for journalists in large cases. By contrast, monetary incentives help explain employee whistleblowing.