Leaks, Disclosures and Internal Communication
40 Pages Posted: 13 Jul 2017 Last revised: 25 Mar 2024
Date Written: November 9, 2017
Abstract
We study how increasing whistleblower incentives affect a firm’s communication decisions, price informativeness and real efficiency. An informed manager, who can divert cash for private benefit, privately communicates with his employee about project fundamentals and chooses investment. Given her information, the employee maximizes internal alignment and can leak the manager’s message with some noise. Stronger whistleblower incentives lead to more informative leaks, less misconduct and higher price informativeness. However, they can decrease firm value and real efficiency by increasing the manager’s manipulation of internal communication. More targeted policies (e.g., mandating more public disclosure) improve both price informativeness and real efficiency.
Keywords: leaks, whistleblower, disclosure, internal communication, efficiency
JEL Classification: D83, M14
Suggested Citation: Suggested Citation