Whistleblowing Intentions of LowerLevel Employees the Effect

Whistleblowing Intentions of Lower-Level Employees: The Effectof Reporting Channel, Bystanders, and Wrongdoer Power Status

Jingyu Gao Robert Greenberg Bernard Wong-On-Wing

Received: 15 January 2013 / Accepted: 29 November 2013 / Published online: 12 February 2014

Springer Science+Business Media Dordrecht 2014

Abstract It has been suggested that a reporting channel

administered by a third-party may represent a stronger

procedural safeguard of anonymity and avoids the appear-

ance of impropriety. This study examines whistleblowing

intentions among lower-tier employees, specifically exam-

ines whether an externally-administered reporting channel

increases whistleblowing intentions compared to an inter-

nally-administered one. In contrast to the findings of an

earlier study by Kaplan et al. (Audit J Pract Theory

28(2):273288, 2009), our results suggest that whistle-

blowing intentions are higher when the reporting channel is

administered externally than when it is administered inter-

nally. We also find that an externally-administered reporting

channel mitigates the negative effect of bystanders on

whistleblowing intentions. Implications are discussed.

Keywords Whistleblowing Bystander effect Reporting channel Sarbanes-Oxley

Introduction

Each year, Time magazine selects a Person of the

Yearthe individual whom it believes affected history

the most during that year. In 2002, the Person of the

Year consisted of three women who were whistleblowers

within large organizations: Enron, the FBI, and WorldCom.

The scandals following the reports of these whistleblowers

provided impetus for the United States Congress to pass the

Sarbanes-Oxley (SOX) Act (2002), which encourages

whistleblowing and provides protection from retaliation.

Since then, whistleblowing has continued to receive

increased attention, particularly given evidence of its rel-

ative importance in fraud detection compared to internal

controls or internal auditing. For example, the 2008 Report

to the Nation on Occupational Fraud and Abuse by the

Association of Certified Fraud Examiners (ACFE 2008,

p. 38) find that 46.2 % of frauds are initially detected by

tips provided by employees while internal audit detects

only 19.4 % and internal controls detect 23.3 %.Today,

additional protection and incentives for whistleblowers are

provided by the Dodd-Frank Wall Street Reform and

Consumer Protection Act (2010).

Although most frauds are perpetrated by upper man-

agement or from within the accounting department (ACFE

2008), other employees within the organization may also

have knowledge of the fraudulent activity. Moberly (2006,

p. 1108) notes, for example, that in the financial miscon-

duct cases at many companies, including Enron, countless

lower-level employees necessarily knew about, were

exposed to, or were involved superficially in the wrong-

doing and its concealment, but few disclosed it, either to

company officials or to the public. Apparently, a rela-

tively large number of lower-level employees are exposed

to fraud, but remain silent.

We are thankful for the valuable comments of participants at the

Waterloo 1st Biennial Symposium on Accounting Ethics, the 2012

ABO Meeting in Atlanta, and the 17th Annual Ethics Research

Symposium in Washington, DC.

J. Gao (&)Renmin University of China, Beijing, China

e-mail: [email protected]

R. Greenberg B. Wong-On-Wing (&)Washington State University, Pullman, WA, USA


R. Greenberg


123

J Bus Ethics (2015) 126:8599

DOI 10.1007/s10551-013-2008-4

Consistent with the above observation, Mesmer-Magnus

and Viswesvaran (2005) find in their meta-analysis that

younger employees or those at a lower job level are

uncomfortable with reporting wrongdoing (particularly by

those at higher levels in the organizational hierarchy).

Those employees feel that they lack sufficient power to

blow the whistle and effect change. In contrast, consistent

with earlier studies, (e.g. Near and Miceli 1996; Miceli

et al. 1991a, b), Mesmer-Magnus and Viswesvaran (2005)

observe that employees of higher tenure and job level are

more likely to blow the whistle. They suggest that orga-

nizations should consider targeting lower-tier employees

for specific training, including communicating how reports

of wrongdoing might be made.

In the present study, we examine whistleblowing inten-

tions specifically among lower-tier employees. We investi-

gate the extent to which an externally administered

reporting channel increases whistleblowing intentions

compared to an internally administered one. It has been

suggested that a reporting channel administered by a third-

party may represent a stronger procedural safeguard of

anonymity and avoids the appearance of impropriety (ACFE

2005; The Network 2006). Consequently, it should be

associated with higher levels of whistleblowing than an

internally administered reporting channel. Interestingly,

however, a study by Kaplan et al. (2009) unexpectedly finds

that reporting intention is greater when the reporting channel

is administered internally than when administered exter-

nally. Kaplan et al. (2009) speculate that their unexpected

finding may be attributable to the preference of executives

and upper management not to disclose fraud occurrences to

outsiders because of their concern about the reputation. In

the current study, we conjecture that to the extent that lower-

level employees do not have the same perspective and

incentive as upper-level executives, they may be less con-

cerned about the companys reputation. Instead, they may

focus on the anonymity of the reporting channel due to the

concern about possible retaliation. As a result, the claimed

benefit of an externally administered reporting channel may

be observed among lower-level employees.

In the present research, we first replicate the study of the

effect of reporting channel administration on whistle-

blowing intentions and test the generalizability of the

unexpected finding by Kaplan et al. (2009) among lower-

tier employees. We specifically seek to establish the extent

to which whistleblowing intention among those employees

is higher (or lower as in Kaplan et al. 2009) when the

reporting channel is administered externally than when it is

administered internally. We then extend the research by

examining the degree to which an externally administered

reporting channel can alleviate the negative effect of two

contextual factors on whistleblowing intentions: the pre-

sence of bystanders and high wrongdoer power status.

The bystander effect, documented by Latane and Darley

(1968), suggests that the presence of other people will

inhibit ones intention to help. In the current context, it

means that compared to the situation in which a single

individual observes some wrongdoing, when more than one

person witnesses the wrongdoing, each individual will be

less likely to blow the whistle because according to the

diffusion of responsibility, perceived individual responsi-

bility is decreased.

Wrongdoer power status can also reduce whistleblowing

intentions. Earlier studies (e.g., Cortina and Magley 2003;

Lee et al. 2004; Rehg et al. 2008) have shown that retali-

ation is more likely from individuals whose power status is

high. Given the higher likelihood of retaliation, whistle-

blowing intention can be expected to be lower when the

wrongdoing is perpetrated by high-level employees than

when it is performed by lower-level employees.

Participants in our study were undergraduate business

students from a state university in the US. They had limited

work experience and served as surrogate lower-tier

employees. To observe the influence of the three factors of

interest, we manipulated reporting channel administrator

(internal vs. external), presence of bystanders (absence vs.

presence of other bystanders), and wrongdoers power

status (supervisor vs. entry-level employee) between

subjects.

The results of our experiment suggest that lower-level

employees reporting intention is higher when the reporting

channel is administered externally by a third-party than

when it is administered internally. Moreover, the externally

administered reporting channel moderates the bystander

effect. In particular, when the reporting channel is admin-

istered internally, the reporting intention of a potential

whistleblower is significantly lower when there are other

bystanders compared to when there are no other bystand-

ers. In contrast, whistleblowing intentions do not differ

significantly between the two conditions when the report-

ing channel is administered externally by a third-party. We

also find that lower-level employees whistleblowing

intention is significantly lower when the wrongdoer is a

supervisor than when s/he is a coworker. This effect is,

however, not significantly reduced by the use of an exter-

nally administered reporting channel.

Our research contributes to the whistleblowing literature

in several ways. First, our study provides evidence that

reporting channels administered externally may be more

effective than those administered internally in promoting

whistleblowing among lower-tier employees. Our study

thus complements that of Kaplan et al. (2009), who find

opposite results using participants in a management role.

Together, the results of the two studies provide evidence

consistent with the notion that lower-tier employees may

not be as concerned as upper management about disclosing

86 J. Gao et al.

123

fraud occurrences to outsiders. This presents an interesting

dilemma. The issue is, however, in practice; companies can

balance the need to detect fraud and the importance of

protecting the companys reputation. Second, we find a

bystander effect that negatively impacts whistleblowing

intentions. Moreover, results of our path analysis provide

evidence consistent with the theory of diffusion of

responsibility. This outcome is opposite of the findings by

Robinson et al. (2012). We conjecture that possible

explanations for this inconsistency may be differences in

the design, participants and data collection procedures

between the two studies. Third, we find that the negative

effect of bystanders is moderated by the use of an exter-

nally administered reporting channel. This result provides

further evidence of the difference in effectiveness between

internally and externally administered reporting channels

in promoting whistleblowing.

The remainder of this paper is organized as follows. The

next section provides background information and devel-

ops the hypotheses. The third section describes the research

method and the fourth section reports the results of the

study. The implications of the findings as well as the

limitations of the current study are discussed in the final

section.

Background and Hypotheses

Whistleblowing

Since the scandals at Enron, the FBI, Worldcom, and other

organizations, whistleblowing has received growing

attention from the public and academia. Research has

examined both determinants of individuals whistleblowing

as well as other aspects of the phenomenon, such as steps in

making whistleblowing decisions (Vandekerckhove and

Lewis 2012; Lewis and Kender 2010), the correlation

between whistleblowing intention and actual behavior

(Mesmer-Magnus and Viswesvaran 2005) and perceived or

actual retaliation following whistleblowing (e.g. Mesmer-

Magnus and Viswesvaran 2005; Rehg et al. 2008).

A significant amount of research has focused on factors

that impact individuals intention to blow the whistle. It has

been documented that people in an organization are more

likely to report unethical or illegal issues if they have better

job performance reviews, better education, superior posi-

tions compared to the wrongdoer, and higher scores in

moral judgment tests (e.g. Brabeck 1984; Chiu 2003; Mi-

celi and Near 1984; Near and Miceli 1996; Sims and

Keenan 1998). Potential whistleblowers demographic

information, such as gender, may also play a role in the

decision making process. For example, Kaplan et al. (2008)

indicate that when an anonymous reporting channel is

available, males and females differ in their judgments

regarding the reduction in personal costs of an anonymous

reporting channel compared to a non-anonymous reporting

channel.

The effects of contextual and organizational attributes

on company employees willingness to blow the whistle

have also been studied (e.g. Keenan 1995; King 1999;

Kaptein 2011). For example, perceived organizational

justice (Seifert et al. 2010), the supervisors support (Sims

and Keenan 1998), the organizations propensity to

encourage whistleblowing (Mesmer-Magnus and Vis-

wesvaran 2005) and public industry type (Perry and Wise

1990) are strongly and positively related to employees

intention to report fraud. Furthermore, employees are more

willing to blow the whistle when it is encouraged by the

general organizational climate. An ethical organization

culture consists of many aspects, including integrating

ethics in decision making processes, establishing a com-

pensation system that rewards ethical behavior, and setting

a tone that allows employees to question obedience of

authority (Rothwell and Baldwin 2006; Trevino et al.

1999). Not surprisingly, whistleblowers tend to report

externally when the organizational context seems unfa-

vorable (Miceli and Near 1992). Blowing the whistle

externally has also been found to be positively associated

with the supervisors support, as well as informal and

formal company policies that encourage external whistle-

blowing (Sims and Keenan 1998). Additionally, compared

to internal whistleblowers, those who report to an external

recipient tend to provide more convincing evidence with

which to support their allegations of wrongdoing (Dworkin

and Baucus 1998).

In the present study, we posit that relative to an inter-

nally administered reporting channel, one that is externally

administered can enhance whistleblowing among lower-

level employees. We also hypothesize that an externally

administered reporting channel can alleviate the negative

effect on whistleblowing intentions of two contextual fac-

tors: the presence of bystanders and high wrongdoer power

status. Below we develop our hypotheses.

Reporting Channel

After observing that someone is engaged in wrongdoing,

employees may report it to the wrongdoers supervisor or

to someone who has the authority to investigate, detect, or

terminate the wrongdoing. However, under this normal

face-to-face reporting, perceived personal cost will be

higher compared to when the reporting is anonymous

(Ayers and Kaplan 2005). Consequently, face-to-face

reporting of wrongdoing can be expected to be low relative

to anonymous reporting. Surveys of employees provide

evidence of this. For example, The Network (2010) found

Whistleblowing Intentions of Lower-Level Employees 87

123

that in 2009, 71 % of the participants did not directly notify

management of an observed questionable issue. Similarly,

the Ethics Resource Center (2007) found that 42 % of

employees who observed misconduct remained silent.

More than half indicated that they did so because they

would have had to report to the person involved or because

they were not aware of the availability of an anonymous

reporting channel. These findings indicate that an anony-

mous reporting channel may be able to effectively detect

fraud or even potentially prevent fraud.

The SOX Act of (2002) requires the audit committee of

companies to establish whistleblowing procedures whereby

employees can anonymously submit issues of concern

regarding questionable accounting or auditing. However,

there is no detailed guideline about how to administer an

anonymous reporting channel. Within publicly-traded

companies, the SEC allows audit committees broad dis-

cretion regarding policies and procedures for anonymous

reporting channels. Therefore, the effectiveness and con-

fidentiality of an anonymous reporting channel may vary

depending on how it is administered.

Corporations can operate their anonymous reporting

channels in-house within their Department of Internal

Audit or Department of Human Resource (Kaplan et al.

2009). In an investigation of ethics programs in Fortune

500 service and industrial firms, Weaver et al. (1999) find

that Human Resources (HR) is ultimately responsible for

ethics/compliance management in 28 % of responding

firms, while legal and audit staff are taking a more prom-

inent role (Weaver and Trevino 2001). Apparently, the role

of HR in companies ethics management is relatively minor

(Weaver and Trevino 2001). On the other hand, the

Department of Internal Audit has a unique role within the

organization, with close relationship to both senior man-

agement and the audit committee. Thus it is a natural outlet

for potential whistleblowers (PricewaterhouseCoopers

2004; Read and Rama 2003). However, from the employ-

ees perspective, the internal audit is not a preferred

reporting channel, especially when social confrontation

occurs (Kaplan et al. 2010).

Companies can also utilize a reporting system main-

tained by an independent third-party provider which is

considered to provide stronger procedural safeguards

including high confidentiality, trained professionals, and an

effective investigation process afterward (Kaplan et al.

2009). According to Trevino et al. (1999), a number of US

companies outsource their telephone hotlines to outside

consultants or security companies in distant cities. Fifteen

percent of members of the Ethics Officers Association

(EOA) outsource their reporting system. Another nineteen

percent have a hybrid (internal/outsourced) system. Pro-

fessional organizations (e.g. ACFE 2005; The Network

2006) indicate that a hotline administered by a third party

represents a strong procedural safeguard and provides

many benefits. One important benefit is that an independent

third-party can provide greater protection of anonymity,

especially for smaller companies. The reason is that in

those small-size organizations, everyone knows each other

and thus, it is particularly difficult to guarantee confiden-

tiality and anonymity. Furthermore, outsourcing the

reporting hotline can not only be less expensive for com-

panies, but it can also insure that issues are treated pro-

fessionally and quickly.

Based on the above, compared to an internally admin-

istered reporting channel, one that is administered exter-

nally should be perceived to be more reliable in protecting

the anonymity of individuals who disclose fraudulent

behavior. This in turn should reduce individuals perceived

personal cost of whistleblowing including that associated

with the risk of retaliation. As a result, whistleblowing

should be more likely when the reporting channel is

administered externally than when administered internally.

Thus, our first hypothesis is stated as follows:

H1 After observing a fraudulent act, employees inten-

tion to blow the whistle will be greater when the com-

panys anonymous reporting hotline is administered

externally by a third-party than when it is administered

internally by the company.

Bystander Effect

The bystander effect (Latane and Darley 1968, 1970)

occurs when bystanders are less likely to intervene because

other people are present. In the current context, the

bystander effect suggests that an individual would be less

likely to blow the whistle when s/he is aware that others

have witnessed a wrongdoing. For example, Dozier and

Miceli (1985) and Graham (1986) find that individuals are

less likely to blow the whistle when many organizational

members could have observed the wrongdoing. Similarly,

Miceli et al. (1991a, b) note that internal auditors are more

likely to blow the whistle through an external reporting

channel when there are few observers. As described below,

we posit that the bystander effect will influence whistle-

blowing intention via individuals perception of personal

responsibility and perceived personal cost in the form of

openness to blame and evaluation apprehension.

Diffusion of responsibility has been used to explain the

bystander effect phenomenon. Responsibility is typi-

cally defined in terms of openness to blame. Discussion of

the decision process associated with aiding has often

focused on the costs (and rewards) of either helping or not

helping (e.g. Latane and Darley 1970; Piliavin and Piliavin

1972). When one is alone, one is the sole object of blame

from others if the emergency results in a tragedy. Thus,

88 J. Gao et al.

123

Windows UserHighlight

perceived personal responsibility and the cost to oneself of

failing to intervene may be high. When many are present,

however, the potential for blame is more diffused. Conse-

quently, perceived personal responsibility and the cost of

failing to intervene is less for any given individual. When

perceived personal responsibility is lower and noninter-

vention has less cost, intervention is less likely to occur.

The bystander effect phenomenon can also be explained

in terms of cost in the form of evaluation apprehension. If

bystanders believe that others are aware of their presence,

the bystanders may be apprehensive regarding others

expectations and evaluations, and thus seek to optimize

these evaluations. Latane and Darley (1970) have called

this process audience inhibition, whereas Schwartz and

Gottlieb (1976) have adopted the label evaluation appre-

hension, because they reason that concern with others

evaluations may enhance as well as inhibit helping. When

wrongdoing is observed by a single individual, s/he is less

likely to be apprehensive about others evaluations and

expectations, since no one else is aware of her/his action. In

contrast, concern about others evaluation and reaction

would be high if other bystanders are present.

In summary, in the case of offering help to victims in an

emergency situation, the responsibility and cost for non-

intervention would be higher when the observer is alone

than when there are several onlookers, since in the latter

case, the responsibility and cost for nonintervention are

shared. In contrast, negative consequences (e.g., getting the

cold shoulder from the boss and co-workers, retaliation) to

whistleblowers may arise from their intervention instead of

their non-intervention. Moreover, the responsibility and

cost for intervention would be higher when there are sev-

eral witnesses than when the whistleblower is the only one

to know about the wrongdoing. Thus, consistent with the

bystander effect, an employee is more likely to blow the

whistle when there are no bystanders than when others are

present. Interestingly, a recent study by Robinson et al.

(2012) finds the opposite of the bystander effect. We re-

examine and predict the bystander effect using a homo-

geneous student participant sample and a between-subject

design, instead of participants from diverse backgrounds

and a within-subject design as employed in that study.

Anonymity vis-a-vis the other bystander has been found

to affect helping, apparently by reducing evaluation appre-

hension (Schwartz and Gottlieb 1980). As noted earlier, in

the current context, the potential whistleblower is likely to

perceive personal blame to be higher when others have

witnessed the wrongdoing than when the whistleblower is

alone to have witnessed it. Thus, s/he will be less likely to

blow the whistle when others are present. We posit that the

benefit of an external reporting channel on whistleblowing

intentions (predicted in H1) will be more significant when

others are present than when the whistleblower is alone to

observe the wrongdoing. This is because when personal

blame is perceived to be high due to the presence of others,

providing a better guarantee of anonymity through an

externally administered reporting channel can significantly

lower perceived personal cost including the likelihood of

retaliation. The effect on whistleblowing intentions should

similarly be significant. In contrast, when the whistleblower

is the only observer of the wrongdoing, the increased

assurance of anonymity afforded by an externally adminis-

tered reporting channel is expected to have a less significant

effect on perceived personal cost and thus, whistleblowing

intentions. Accordingly, we predict the following:

H2 The positive effect of an externally administered

reporting channel on employees whistleblowing intention

will be more significant when wrongdoing is observed in

the presence of bystanders than when it is observed in the

absence of bystanders.

Wrongdoer Power Status

The wrongdoers power status can also influence whistle-

blowing intention via perceived seriousness and personal

cost. It is often measured in terms of the wrongdoers

position in the organization, which reflects bases of power

or the dependence of the organization on the individual

(Miceli et al. 2008). Perceived seriousness can thus be

inferred from the power status of the wrongdoer, which

may indicate information about the amount and/or the

extent of the damages or losses associated with the

wrongdoing. We propose that one way in which wrong-

doers power status may influence whistleblowing intention

is through the perceived seriousness of the wrongdoing.

In addition, previous studies (see Cortina and Magley

2003; Lee et al. 2004; Rehg et al. 2008) find that the more

powerful the wrongdoer, or the more dependent the orga-

nization is on the wrongdoer, the more retaliation will be

directed toward the whistleblower, ceteris paribus. Since

retaliation is an important component of personal cost, the

potential whistleblower is likely to perceive personal cost

to be higher when the power status of the wrongdoer is

high than when it is low. Because of the perceived higher

cost, we propose that a potential whistleblower will be

more concerned about anonymity, and thus, be less likely

to blow the whistle when the power status of the wrongdoer

is high than when it is low. We further posit that the benefit

of an external reporting channel on whistleblowing inten-

tions (predicted in H1) will be more significant when the

wrongdoers power status is high than when it is low. This

is because when the personal cost is perceived to be high

due to the high power status of the wrongdoer, providing a

better guarantee of anonymity through an externally

administered reporting channel can significantly lower the


123

likelihood of retaliation and the associated cost. The effect

on whistleblowing intentions should similarly be signifi-

cant. In contrast, when power status is low, the perceived

personal cost is already relatively low given that the like-

lihood of retaliation is low, compared to when power status

is high. The increased assurance of anonymity afforded by

an externally administered reporting channel is expected to

have a less significant effect on the likelihood of retaliation

and thus, whistleblowing intentions. Accordingly, we pre-

dict the following:

H3 The positive effect of an externally administered

reporting channel on employees whistleblowing intention

will be more significant when the power status of a

potential wrongdoer is high than when it is low.

Methods

Design

We employed a 2 (reporting channel) 9 2 (bystander) 9 2

(power status) 9 2 (case) design, fully crossing the

reporting channel administration (internal vs. external), the

number of bystanders (no other bystander vs. two other

bystanders) and the wrongdoers power status (supervisor

vs. entry-level employee) between subjects. Moreover,

since each participant evaluated two cases (fictitious sup-

plier case and qualification fee case), case is a within-

subject factor.

Participants

A total of 369 business students at a US public university

participated in the study. They served as surrogate low-tier

employees. Their average age was 20.5 years (s.d. = 2.72)

and 57 % were male. Over 75 % of the participants

reported having work experience. The average work

experience was 3.5 years (s.d. = 2.23). These demo-

graphic factors do not differ significantly (p [ 0.10) acrossexperimental groups.

Task

Participants were provided with information about a

hypothetical company, High Energy Corporation (hereafter

HEC). We included excerpts from its Code of Ethics to

communicate the availability of an anonymous reporting

channel and enable the manipulation of the channel

administration factor. Every participant then read two

independent case scenarios, which each described an

employee faced with a whistleblowing decision after

becoming aware of a fraudulent act. In the first case (case

A: fictitious supplier), the fraudster approves payment of a

fake invoice for a fictitious supplier. In the second case

(case B: qualification fee), the fraudulent employee

requires payment of a fee to his personal account for a

supplier to qualify for a bid. Within each case, the number

of bystanders and the power status of the wrongdoer were

manipulated (see Independent Variables section). After

reading each case, participants were asked to indicate the

probability that the would-be whistleblower would call the

hotline to report the wrongdoing. At the end of the task,

participants responded to manipulation check questions

and provided demographic information.

Independent Variables

Reporting Channel Administration

In the internal administration condition, participants were

told that HECs reporting hotline is operated by the com-

panys Department of Internal Audit. Participants in the

external administration condition were told that the

reporting hotline is operated by an independent third party

named Compliance Expert Co., Ltd., that is located in New

York, NY, USA. Other details regarding the reporting

hotlines (e.g., availability 24 h a day, 7 days a week) were

identical across both conditions.

Presence of Bystanders

We manipulated the presence versus absence of bystanders

(other than the potential whistleblower) in each of the two

cases as follows. In the fictitious supplier case, the would-

be whistleblower becomes aware of the wrongdoing when

one late evening at the office, he overhears a phone con-

versation (about the fake invoice) between the fraudster

and his accomplice. In the bystander present condition, the

potential whistleblower also hears two coworkers talking

about the wrongdoing after the fraudster leaves. In the

bystander absent condition, the two coworkers are not

mentioned.

In the qualification fee case, the would-be whistleblower

learns about the fraud when he goes to the copy room and

finds a printed copy of the fraudsters letter to the pro-

spective supplier requesting the prohibited fee. In the

bystander present condition, the potential whistleblower

sees two other employees reading the letter when they go to

the copy room. In the bystander absent condition, the other

two employees are not mentioned.


The manipulation of wrongdoer power status was effected

in the two cases as follows. In the high power status

90 J. Gao et al.

123

condition, the wrongdoer was described as the observers

supervisor in case A, and as a purchasing manager in case

B. In the low power status condition, the wrongdoer was

described as an entry-level employee in both case A and

case B.

Dependent Variable

The primary dependent variable is the whistleblowing

intention using the available hotline. Participants were

asked to assess the probability (from 0 to 100 %) that the

potential whistleblower would call the hotline to report the

wrongdoing. Previous research (e.g. Cohen et al. 1998,

2001; Chung and Monroe 2003) indicates that social

desirability bias is more likely when behavior intention

items are phrased in the first person than when phrased in

the third person. Therefore, we phrased the question in the

third person and asked participants to indicate the target

persons intention to report the potential wrongdoing.

Results

Manipulation and Other Checks

We first verified whether the study participants perceived

our three manipulations as intended. To that end, they were

asked in the last section of the research instrument:

(i) whether the hotline was operated by the companys

Department of Internal Audit or by an independent third-

party company; (ii) whether the would-be whistleblower

was the only employee aware of the wrongdoing; and (iii)

whether the presumed wrongdoer was an entry-level

employee or a supervisor.

Of the 369 participants, 96 (26 %) failed at least one

manipulation check: 52 participants failed the manipulation

check for Reporting Channel, 38 failed the bystander

manipulation check, and 47 failed the manipulation check

for wrongdoers power status. Note that some participants

failed more than one manipulation check. Data from the

remaining 273 participants are used for testing the

hypotheses.

For each of the two reporting channel administration,

participants were also asked to indicate using a 7-point

likert scale (1 = Not at all confident, 7 = Extremely

Confident), how confident they were that their anonymity

would be guaranteed if they report wrongdoing. Consistent

with our expectation, the reporting channel administered by

an independent third party (5.47) was perceived to better

protect a reporters anonymity than that maintained by the

companys Department of Internal Audit (4.18) (t = 8.70,

p = 0.000, 2-tailed).

Tests of Hypotheses

To test our hypotheses, a 2 (reporting channel) 9 2

(bystander) 9 2 (power status) 9 2 (case) ANOVA was

performed with whistleblowing intention as the dependent

variable.1 Case is a within-subject factor. The results are

presented in Table 1.

H1 Our first hypothesis predicts that an individuals

intention to report a fraudulent act using an anonymous

reporting hotline will be greater if it is administered by a

third-party than if it is maintained by the companys own

Department of Internal Audit. Table 1 shows a significant

(F (1, 271) = 7.5, p = 0.007) reporting Channel main

effect on whistleblowing intention. As shown in Table 2,

whistleblowing intention is higher under the externally

administered reporting channel (58.4, s.d. = 17.3) than

under the internally administered reporting channel (52.2,

s.d. = 19.2). These results are consistent with H1.

H2 Our second hypothesis predicts an interaction between

reporting channel administration and the number of

bystanders on whistleblowing intentions. As shown in

Table 1, the predicted interaction between the two factors is

significant (F (1,271) = 3.688, p = 0.056). To further

investigate this finding and understand the nature of this

interaction, we perform simple effects tests. The results are

shown in Table 2. In the no bystander situation, the differ-

ence in means of whistleblowing intention between internal

reporting channel administration (54.9, s.d. = 16.5) and

external reporting channel administration (57.5, s.d. = 17.6)

is not statistically significant (t = -0.086, p = 0.196, one-

tailed). However, in the bystander situation the mean of

whistleblowing intention under the externally administered

reporting channel (59.4, s.d. = 16.8) is significantly higher

(t = -2.96, p = 0.0018, one-tailed) than that under the

internally administered reporting channel (49.8, s.d. =

21.2). This pattern of results is consistent with H2.

H3 Our third hypothesis predicts an interaction between

reporting channel administration and the power status of the

wrongdoer on whistleblowing intentions. As shown in

Table 1, the interaction between reporting channel admin-

istration and wrongdoer power status is not significant

(p = 0.91). The mean difference in whistleblowing intention

between high and low wrongdoer power status is not sig-

nificantly different between internal (6.99) and external

1 We replicated the ANOVA omitting the wrongdoer power

status 9 bystander interaction and the three-way interaction as these

interactions are not hypothesized. The resulting hypothesis tests and

significance levels are nearly identical to those in Table 1. In addition,

we performed an ANCOVA with gender as a covariate. Gender is

omitted from the analysis as it is not statistically significant.


123

(6.28) reporting channel administration. These results do not

support H3.

Supplemental Analyses

Interaction of Bystander and Case

Results of the test of within-subjects effects in Table 1

indicate a significant interaction between case and

bystander (F (1,269) = 9.76, p = 0.002). After conduct-

ing simple effects tests (results are shown in Table 3),

we find that the bystander effect on whistleblowing

intention is significant in the qualification fee case (mean

differenceno-bystanderbystander = 6.6, t = 2.33, p = 0.0102,

one-tailed). Interestingly, the opposite effect is obtained in the

fictitious supplier case (mean differenceno-bystanderbystander =

-3.3, t = -1.29, p = 0.0978, one-tailed). We speculate on

this unexpected finding in the Discussion section.

Test of Mediation

To provide insights into how our three manipulated factors

(reporting channel administration, bystander, and wrong-

doers power status) influence reporting intentions, we test

the effect of three mediating variables theorized by Schultz

et al. (1993). Their theoretical model depicts whistle-

blowing intentions of individuals as a function of three

assessments: perceived seriousness of questionable act,

perceived personal cost of reporting, and perceived per-

sonal responsibility for reporting.

For each case scenario, our research instrument inclu-

ded three questions, one each related to participants per-

ceptions of the seriousness of the observed fraudulent act,

the personal cost of reporting the fraud, and the perceived

responsibility for reporting it. We, respectively, asked

participants the extent to which they agreed that the

potential whistleblower is likely (i) to judge that the fraud

is totally unacceptable; (ii) to be extremely concerned that

if he reports the potential wrongdoing, the fraudster might

find out and try to harm him; and (iii) to count on someone

else to report the potential wrongdoing. All responses were

recorded on a 7-point likert scale (7 = completely agree,

1 = completely disagree). To be consistent with the cod-

ing of the seriousness and personal cost measures,

responses to the responsibility measure (third item) was

reverse-coded.

To test the effect of the theorized mediators, we con-

ducted path analysis using Mplus. Because Case is a sig-

nificant factor based on the ANOVA results shown

previously, we conduct separate path analyses for the fic-

titious supplier case and the qualification fee case. The

results of the analyses are presented in Fig. 1 and Table 4.

In each case, the model fits the data well (fictitious supplier

case: v2 = 12.80, CFI = 0.94, RMSEA = 0.06, SRMR =0.04; qualification fee case: v2 = 17.98, CFI = 0.94,RMSEA = 0.08, SRMR = 0.05). The mediating roles of

perceived responsibility and perceived personal cost of

reporting can be observed. Specifically, the presence of

bystanders decreases whistleblowing intention through

reduced perceived personal responsibility. Similarly, a

Table 1 ANOVA for the effectof reporting channel

administration, bystander, and

wrongdoer power status on

whistleblowing intention

a Fictitious supplier case (case

A) and qualification fee case

(case B)

Source SS df MS F p value

Within-subjects effects

Casea 4,768 1 4,768 15.27 0.000

Case 9 reporting channel administration 30.98 1 30.98 0.099 0.753

Case 9 wrongdoer power status 46.82 1 46.82 0.15 0.699

Case 9 bystander 3048.9 1 3048.9 9.76 0.002

Case 9 reporting channel administration 9 wrongdoer power

status

105.7 1 105.7 0.338 0.561

Case 9 reporting channel administration 9 bystander 22.39 1 22.39 0.072 0.789

Case 9 wrongdoer power status 9 bystander 32.1 1 32.1 0.103 0.749

Case 9 wrongdoer power status 9 bystander 9 reporting

channel administration

30.9 1 30.9 0.099 0.753

Between-subjects effects

Reporting channel administration 4772.7 1 4772.7 7.5 0.007

Wrongdoer power status 6073.1 1 6073.1 9.52 0.002

Bystander 553.1 1 553.1 0.867 0.353

Reporting channel administration 9 wrongdoer power status 8.38 1 8.38 0.013 0.909

Reporting channel administration 9 bystander 2353.4 1 2353.4 3.688 0.056

Wrongdoer power status 9 bystander 825 1 825 1.293 0.257

Wrongdoer power status 9 bystander 9 reporting channel

administration

606.6 1 606.6 0.950 0.330

92 J. Gao et al.

123

powerful wrongdoer decreases employees whistleblowing

intentions through increased perceived personal cost. Fol-

lowing Preacher and Hayes (2008), multiple mediators

analysis was performed for each case (see Tables 5, 6) to

provide further evidence of mediation.2 The results are

presented below.

Bystander Effect

We expected that the bystander effect would decrease

participants whistleblowing intention through increased

perceived personal cost and decreased perceived personal

responsibility. In the fictitious supplier case (case A, see

panel A in Table 5), we find that the total indirect effect is

statistically significant (Z = -4.303, p \ 0.000), althougha significant total indirect effect is not a prerequisite for

investigating specific indirect effects. Assuming normality,

the results suggest that the separate indirect effect of per-

ceived personal responsibility (Z = -4.422, p \ 0.000) issignificant. The normal theory tests for indirect effects

compute the standard errors using the delta method, which

assumes that the estimates of the indirect effect are nor-

mally distributed. To relax this assumption, bootstrap test

Table 2 Effect of reporting channel administration and bystander on whistleblowing intention

Panel A: cell means

Reporting channel administration Total

Department of Internal Audit Third party

Bystander

No bystander 54.9 (16.5) N = 66 57.5 (17.6) N = 67 56.2 (17.0) N = 133

Bystander 49.8 (21.2) N = 70 59.4 (16.8) N = 70 54.6 (19.7) N = 140

Total 52.2 (19.2) N = 136 58.4 (17.3) N = 137

Panel B: planned comparisons

df t p value (one-tailed)

Effect of reporting channel administration in no bystander situation 131 -0.86 0.1960

Effect of reporting channel administration in bystander situation 138 -2.96 0.0018

Effect of bystander in Department of Internal Audit reporting channel administration 134 1.57 0.0595

Effect of bystander in a third party reporting channel administration 135 -0.65 0.2599

Panel C: figure of means (interaction effect of reporting channel administration and bystander)

Whistleblowing intention is equal to the average of whistleblowing intention in two cases

2 Advantages to specifying and testing a single multiple mediation

model in lieu of separate simple mediation models are: (1) it is

possible to determine the significance of a specific mediator,

conditional on the presence of other mediators in the model; (2) it

is possible to include multiple mediators in one model to allow the

test of competing theories; and (3) in a single multiple mediation

model, the likelihood of parameter bias due to omitted variables is

reduced (Preacher and Hayes 2008).


123

results are also reported. They indicate that only Perceived

Personal Responsibility is a mediator, as its 95 % confi-

dence interval does not contain zero (-9.150 to -3.718).

However, perceived personal cost does not significantly

mediate the influence of bystander on participants whis-

tleblowing intention.

Similarly, in the qualification fee case (case B), as shown

in panel A in Table 6, the total indirect effect is statistically

significant (Z = -4.454, p \ 0.000). Of the two proposedmediators, only Perceived Personal Responsibility is statis-

tically significant (Z = -5.130, p \ 0.000). The resultsfrom the bootstrapping test demonstrate the same pattern. In

particular, perceived personal responsibility is a significant

mediator, as its 95 % confidence interval does not contain

zero (-11.631 to -5.147). In summary, we find that per-

ceived personal cost does not significantly mediate the effect

of bystander on participants whistleblowing intention, but

the mediation role of perceived personal responsibility is

supported.


We expected that wrongdoer power status would influence

participants whistleblowing intention through perceived

personal cost and perceived seriousness. In the fictitious

supplier case (case A), as shown in panel B in Table 5, the

total indirect effect is statistically significant (Z = -1.946,

p \ 0.052). The results also suggest that the separateindirect effect of perceived personal cost (Z = -2.167,

p \ 0.030) is significant. Bootstrapping tests indicate thatonly perceived personal cost is a significant mediator, as its

95 % confidence interval does not contain zero (-3.583 to

-0.434).

Similarly, in the qualification fee case (case B, see panel

B in Table 6), the total indirect effect is statistically sig-

nificant (Z = -2.011, p \ 0.044). Among the two expec-ted mediators, only perceived personal cost is statistically

significant (Z = -2.700, p \ 0.007). Again, the resultsfrom the bootstrapping test indicate that perceived personal

Table 3 Effect of bystander and case on whistleblowing intention

Panel A: cell means

Bystander Total

No bystander Bystander

Case

Fictitious supplier case (case A) 56.7 (20.1) N = 133 60 (21.8) N = l40 58.4 (21.0) N = 273

Qualification fee case (case B) 55.7 (22.4) N = 133 49.1 (16.8) N = l40 52.3 (23.5) N = 273

Total 56.2 (17.0) N = 266 54.6 (19.7) N = 280

Panel B: planned comparisons

df t p value (one-tailed)

Effect of bystander in fictitious supplier case (case A) 271 -1.29 0.0978

Effect of bystander in qualification fee case (case B) 271 2.33 0.0102

Panel C: figure of means (interaction effect of bystander and case)

94 J. Gao et al.

123

cost is a significant mediator, as its 95 % confidence

interval does not contain zero (-4.224 to -0.877).

In summary, we find that perceived seriousness does not

significantly mediate the effect of Wrongdoer Power Status

on participants whistleblowing intention. This is consis-

tent with previous findings of (Kaplan and Whitecotton

2001) and those of Schultz et al. (1993) among their US

participants. However, our results provide evidence of the

mediating role of perceived personal cost on the link

between wrongdoer power status and participants whis-

tleblowing intention.

Reporting Channel Administration

We next examine whether perceived personal cost medi-

ates the effect of reporting channel administration on

participants whistleblowing intention. In the fictitious

supplier case (i.e. case A), perceived personal cost is not

statistically significant (Z = -0.390, p = 0.697, see panel

C in Table 5). The results from the bootstrapping test also

indicate that perceived personal cost is not a significant

mediator, as its 95 % confidence interval contains zero

(-1.645 to 0.709). Therefore the mediation role of per-

ceived personal cost is not supported in the fictitious sup-

plier case (i.e. case A).

The same procedure was repeated in the qualification fee

case (i.e. case B). The results are similar to that of the

fictitious supplier case (see panel C in Table 6). Specifi-

cally, the indirect effect of perceived personal cost is not

significant (p = 0.646). In addition, its 95 % confidence

interval contains zero (-1.455 to 0.558). Thus, perceived

personal cost does not significantly mediate the effect of

reporting channel administration on participants whistle-

blowing intention.

Discussion

As a result of recent corporate scandals, regulatory agen-

cies, and the public have become more concerned about

organizational wrongdoing and ways to encourage whis-

tleblowing. This study examines how the reporting channel

can influence whistleblowing intentions specifically among

lower-tier employees. Since audit committees have wide

discretion on how to administer their anonymous reporting

channel, investigating the effect of different reporting

channel administrations on employees whistleblowing

0.151** (0.389**)

0.073 (0.21**)-0.144** (-0.199**)

0.026 (0.024)

-0.013 (-0.027)

-0.144** (-0.07)

0.018 (-0.099*)0.19** (-0.001)

0.326** (0.336**)

-0.427** (-0.424**)

0.143** (0.097**)

0.179** (0.228**)

Bystander


Reporting Channel

Administration

Perceived Personal Responsibility

Perceived Seriousness

Perceived Personal Cost

WhistleblowingIntention

Fig. 1 Results of path analyses. Fictitious supplier case (qualificationfee case). **Coefficients are significant at p \ .01; *coefficients aresignificant at p \ .05. Coding of variables Reporting channel

administration: 1 = internal audit department, 2 = external third-

party; bystander: 1 = no bystander, 2 = two other bystanders;

wrongdoer power status: 1 = entry level employee, 2 = supervisor

Table 4 Fit statistics for path analysis

Case v2 p CFI(0.90.95)

RMSEA

(B0.08)

SRMR

(B0.06)

Fictitious supplier

case (case A)

12.80 0.05 0.94 0.06 0.04

Qualification fee

case (case B)

17.98 0.01 0.94 0.08 0.05


123

intentions is particularly important from the perspective of

practice and academia.

Our results suggest that lower-level employees whis-

tleblowing intention is higher when the reporting channel is

administered externally by a third-party instead of inter-

nally. This is consistent with expectations that a reporting

channel administered by a third-party may represent a

stronger procedural safeguard of anonymity and avoids the

appearance of impropriety than one administered internally

(ACFE 2005; The Network 2006).

Our study also finds a bystander effect that negatively

influences whistleblowing intentions in the qualification

fee case. In contrast, the presence of bystanders seems to

have a positive impact on whistleblowing intention in the

fictitious supplier case. We surmise that a likely explana-

tion for this unexpected finding is an important difference

in our manipulation of the presence of bystanders across

the two cases. In the qualification fee case, because the

bystanders see the would-be whistleblower leave the copy

Table 5 Mediation analysis in fictitious supplier case (case A)

A. The effect of bystander on whistleblowing intention

a. Normal theory tests for indirect effects

Effect SE Z p

Total -6.275 1.458 -4.303 0.000

Perceived personal cost -0.177 0.393 -0.451 0.652

Perceived personal responsibility -6.097 1.379 -4.422 0.000

b. Bias corrected and accelerated confidence intervals

Lower Upper

Total -9.506 -3.583

Perceived personal cost -1.153 0.542

Perceived personal responsibility -9.150 -3.718

B. The effect of wrongdoer power status on whistleblowing intention


Effect SE Z p

Total -1.486 0.764 -1.946 0.052


Perceived seriousness -0.093 0.447 -0.208 0.835


Lower Upper

Total -3.384 -0.074

Perceived personal cost -3.583 -0.434

Perceived seriousness -1.240 0.837

C. The effect of reporting channel administration on whistleblowing

intention


Effect SE Z p

Total -0.201 0.516 -0.390 0.697



Lower Upper

Total -1.645 0.709


Table 6 Mediation analysis in qualification fee case (case B)

A. The effect of bystander on whistleblowing intention


Effect SE Z p

Total -7.642 1.716 -4.454 0.000

Perceived personal cost 0.630 0.446 1.413 0.158

Perceived personal responsibility -8.272 1.613 -5.130 0.000


Lower Upper

Total -11.362 -4.127


Perceived personal responsibility -11.631 -5.147

B. The effect of wrongdoer power status on whistleblowing intention


Effect SE Z p

Total -2.845 1.415 -2.011 0.044


Perceived seriousness -0.572 1.272 -0.450 0.653


Lower Upper

Total -5.804 -0.371

Perceived personal cost -4.224 -0.877

Perceived seriousness -3.309 1.847

C. The effect of reporting channel administration on whistleblowing

intention


Effect SE Z p

Total -0.190 0.415 -0.459 0.646



Lower Upper

Total -1.455 0.558


96 J. Gao et al.

123

room, he knows that they are aware of his knowledge about

the fraudsters scheme. In contrast, in the fictitious supplier

case, the potential whistleblower is completely anonymous

and knows that the bystanders who overheard the fraudster

are not aware of his knowledge of the fraud. Given this

important difference in our manipulation of the bystander

present condition, the apparent inconsistent findings can be

explained by the concept of evaluation apprehension

(Schwartz and Gottlieb 1976). According to this notion,

would-be whistleblowers are concerned with others eval-

uations. In the qualification fee case, the potential whistle-

blower is not anonymous and would be concerned about the

other bystanders evaluation of him if he reports the fraud.

In the fictitious supplier case, however, the potential whis-

tleblower is completely anonymous and does not have to be

concerned about others evaluation. Moreover, identifying

him as the whistleblower may be more difficult since there

are at least two other bystanders who observed the fraud.

The results also suggest that when the reporting channel

is administered internally, the reporting intention of a

potential whistleblower is significantly lower when there

are other bystanders compared to when there are no other

bystanders. In contrast, whistleblowing intentions do not

differ significantly between the two conditions when the

reporting channel is administered externally by a third-

party. This provides further evidence of the difference in

effectiveness between internally and externally adminis-

tered reporting channels in promoting whistleblowing.

In addition, we find that an individuals whistleblowing

intention is significantly lower when the wrongdoer is a

supervisor than when s/he is a coworker. This effect is,

however, not significantly reduced by the use of an exter-

nally administered reporting channel.

The overall results of our path analyses are consistent

with Schultz et al. (1993) model which depicts individuals

intention of reporting questionable acts as a function of

three assessments (i.e. perceived seriousness of question-

able acts, perceived personal responsibility, and perceived

personal cost). More importantly, our results indicate that

presence of bystander and power status of wrongdoer

impact employees whistleblowing intention through per-

ceived personal responsibility and assessments of personal

cost respectively.

Before discussing the implications of our findings, we

note some limitations. First, we do not specifically measure

the extent of diffusion of responsibility, evaluation appre-

hension, threat of retaliation, and anonymity. Thus, we are

not able to directly assess the actual process by which

whistleblowing intentions are formed. Second, our manip-

ulation of the bystander effect across the two cases differs in

anonymity in observing the wrongdoing. As a result, the

influence of this aspect of anonymity and that of the

bystander effect appear to be confounded in the second case.

Third, our dependent measure is whistleblowing intentions,

which are not always predictive of behavior. Fourth, our

participants are business students. Whether the results can be

generalized to other groups of individuals is unknown.

Our research has implications for both practice and

future research. With respect to practice, our results toge-

ther with those of Kaplan et al. (2009) present an inter-

esting dilemma. While our findings suggest that an

externally administered reporting channel may promote

whistleblowing among lower-tier employees, upper-level

management may prefer an internally administered channel

to protect the reputation of the company. The issue is,

however, in practice; companies can balance the need to

detect fraud and the importance of protecting the com-

panys reputation.

With respect to research, our study findings suggest

several areas for future investigation. One possible exten-

sion is the simultaneous examination of the external

reporting channels high confidentiality, its use of trained

professionals and its effective investigation process after-

ward, which are all posited to have a positive influence on

whistleblowing intentions (Kaplan et al. 2009). It may be

the case, for instance, that employees perception of the

quality of the professionals employed at the external

reporting agency, along with their assessment of the quality

of the post-report investigation procedures, are just as

important as their belief in the confidentiality of reporting.

A further interesting question relates to the reporting

channel medium. Trevino et al. (1999) examine outsourced

telephone hotlines. Future studies can examine whether the

reporting mediumtelephone, email, web-based, etc.

influences whistleblowing intentions.

The results of our mediation tests also suggest that not

all expected mediators are significant. Future research can

investigate alternative processes by which the antecedent

factors impact whistleblowing intentions.

Finally, the apparent inconsistent findings between our

two cases indicate that distinguishing anonymity in

observing the wrongdoing from anonymity in reporting the

wrongdoing is important. In particular, our results suggest

that anonymity in observing the wrongdoing can impact the

extent of evaluation apprehension which may be an

important factor in influencing whistleblowing. Future

research can be specifically designed to further examine

this possibility.

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Whistleblowing Intentions of Lower-Level Employees: The Effect of Reporting Channel, Bystanders, and Wrongdoer Power StatusAbstractIntroductionBackground and HypothesesWhistleblowingReporting ChannelBystander EffectWrongdoer Power Status

MethodsDesignParticipantsTaskIndependent VariablesReporting Channel AdministrationPresence of BystandersWrongdoer Power Status

Dependent Variable

ResultsManipulation and Other ChecksTests of HypothesesSupplemental AnalysesInteraction of Bystander and CaseTest of Mediation

Bystander EffectWrongdoer Power StatusReporting Channel Administration

DiscussionReferences

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Whistleblowing Intentions of LowerLevel Employees the Effect