Three trends
Monday, February 18, 2019
By Tom Snee

Research projects conducted by accounting faculty at the University of Iowa Tippie College of Business have identified three trends that affect corporations in unexpected ways:

The Whistleblower Effect. 317 publicly traded firms were the target of a whistleblower retaliation complaint made to OSHA between 2003 and 2010. Jaron Wilde, assistant professor of accounting, found that following the complaint, these firms engaged in less aggressive financial and tax management practices and had fewer accounting irregularities than other firms during the same period. Wilde says it’s likely because these companies know they’re under investigation and want to be on their best behavior.

The Scandal Effect: 230 corporate scandals have occurred in the United States since 1850, according to an analysis of coverage in the New York Times by Clare Wang, associate professor of accounting. The study suggests that government regulations passed in the wake of each scandal had little to no effect in preventing future scandals. In fact, Wang says that rather than reducing the likelihood of future corporate misbehavior, regulations were actually predictive of future scandals occurring. It found regulators always seemed to be one step behind corporate managers, who either exploited loopholes in the regulation or, in some cases, benefited from industry capture. Scandals come in waves, Wang says, suggesting that the calming effect of regulation lasts only as long as it takes for managers to figure out how to get around the regulation.

The Spotlight Effect. Public pressure campaigns that force companies to follow the law can work. A study by Jaron Wilde, assistant professor of accounting, found that British companies started to comply with a UK tax law they had mostly ignored when a public advocacy organization publicly identified their failure to comply. The law required British firms to name the countries where they have subsidiaries, particularly if those subsidiaries are in low- or no-tax countries. The law was largely ignored until the companies were publicly identified by a social action group. As a result, most firms gave in to the pressure and complied with the law by identifying their subsidiaries.