According to a study by Jaron H. Wilde at the University of Iowa (an assistant professor of accounting in the Tippie College of Business), whistleblowers provide an effective deterrent to misreporting by corporations. Although this study looked at the financial sector, Nolan Auerbach & White believes this reasoning could be applicable in the healthcare arena.
The study looked at 317 public companies from 2003-2010, and found that accounting irregularities and other frauds significantly decreased after whistleblower-initiated suits were settled. Further, penalized firms were “significantly more likely to experience a decrease in the incidence of accounting irregularities and a decrease in tax aggressiveness, compared with control firms.”
Wilde believes that his finding show that serious and significant whistleblower complaints may have a ripple effect inside a company, spreading a new culture of compliance-based attentiveness which is beneficial for both investors and the public at large. Wilde said:
A complaint puts management on notice that a whistleblower has come forward, so they know it’s possible they’re going to be looked at more closely by the SEC or other federal regulatory agencies…In theory, they react by engaging in less aggressive practices, and the evidence seems to validate that theory.