Blowing the whistle on corporate fraud: the role of regulators and journalists in the financial vs non-financial sectors

We investigate the role of the regulatory environment and the press freedom in detecting corporate fraud. We study 1,242 internal frauds from 79 countries during the period of 2011–2019. The importance of regulation is assessed by splitting the sample into the highly regulated and monitored financial sector and the non-financial sector subject to less strict internal standards and industry-specific regulation. To examine the importance of journalists in fraud detection, we use the Word Press Freedom index and postulate that in countries with free media more internal frauds are detected. We find empirical evidence on a global sample that in the financial sector designated authorities (professional bank supervisors) play an important role in fraud detection. For the non-financial sector, we show that the media is crucial in detecting corporate fraud: the more freely journalists can write, the more events are detected.