Whistleblowing Threat and Corporate Disclosure

This study examines how the threat of whistleblowing affects managers’ voluntary disclosure incentives. As external whistleblowers play an important role in whistleblowing (Dyck et al. 2010), we argue that firms facing a heightened whistleblowing threat may reduce their public disclosure of information that is potentially useful for external whistleblowers. In particular, we argue that revealing a firm’s economic links to other firms is costly, because external whistleblowers could acquire relevant information through the links and because evidence of the firm’s misconduct could be discernible in economically connected firms. Using the states’ staggered adoptions of false claims acts (FCAs) to identify exogenous increases in firms’ risk of being whistleblown, we find that the state FCA adoptions lead to a significant decrease in firms’ disclosure of major customer identities. The effect is stronger for firms that are more likely to attract attention from external whistleblowers and firms that have more contractual exposure to the government.