Whistleblowing-Systems in companies listed in Germany - Which Corporate Governance factors shape an entity's Whistleblowing-System?

Abstract

Whistleblowing is an essential mechanism for fraud detection and has been present in the recent media in high-profile cases. Despite Germany not having a national whistleblowing law, many companies listed in Germany already have established internal whistleblowing systems. However, those systems are heterogenous and differ by their level of maturity. We assume that firm-specific corporate governance characteristics shape these whistleblowing systems in the absence of a uniform legal framework. We test our hypotheses by examining the whistleblowing systems of entities listed in German indices DAX, MDAX, and SDAX for the years 2019 and 2020. First, we measure the anticipation of the upcoming EU whistleblower regulation by the company's whistleblowing system and second, the sophistication of the whistleblowing systems. By running multiple OLS regression analyses we find a statistically significant positive relationship between external governance factors (e.g. big4 audit and free float) and both of our whistleblowing system measures. Moreover, we find a statistically significant positive relationship between the supervisory board (e.g. CSR committee) as well as corporate governance reputation (e.g. past corporate scandals in terms of governance) and the sophistication of the whistleblowing system.