Does internal whistleblowing build more socially responsible firms?

We examine the impact of internal whistleblowing on firms??? CSR performance. We find that establishing internal whistleblowing poses a significantly positive impact on firms??? CSR performance. To alleviate endogenous problems, we implement the instrumental variable regression and propensity score matching methods. Furthermore, we find that the effect of internal whistleblowing on firms??? CSR performance is more pronounced in firms with fewer financial constraints or own higher profitability, firms with less institutional shareholding and less analyst following, and firms located in provinces with a greater cultural atmosphere of egalitarianism and humanism. Finally, we further provide evidence that a positive effect of internal whistleblowing on firms??? profit and market value is stronger among the more socially responsible firms. Our paper is the first to explore the link between the monitoring role of employees and firms??? CSR, contributing to the growing literature on whether and how employees impact a firm???s CSR performance.

Automated summary

We examine the impact of internal whistleblowing on firms' CSR performance and find that it has a significantly positive effect. To overcome endogeneity issues, we employ instrumental variable regression and propensity score matching methods. Moreover, we find that the effect is more pronounced in firms with fewer financial constraints or higher profitability, less institutional shareholding and analyst following, and located in provinces with a stronger cultural emphasis on egalitarianism and humanism. We also provide evidence that the positive effect extends to firms' profits and market value, particularly in socially responsible firms. This study contributes to the literature on the relationship between employee monitoring and firms' CSR performance.