Audit Committee Quality and Best Practices of Whistleblowing: Evidence From Brazilian Companies

Abstract

This study documents the first evidence of the audit committee quality on the best practices of whistleblowing channels in Brazilian companies. We developed a checklist of good practices for internal reporting channels based on the recommendations of the Brazilian Institute of Corporate Governance (IBGC) and the Comptroller General of the Union (CGU). The study sample comprised 397 companies listed on the Brazilian stock exchange (B3). We provide descriptive statistics of the total companies in the sample, approximately 67% of companies implemented whistleblowing channels. We find a positive association between audit committee quality and best practices of internal reporting channels. This finding indicates an effort of audit committees to implement a set of practices to encourage and protect the whistle-blower. We also find a positive association with firm size and audited by big four. Finally, we show that best practices of whistleblowing channels are negative associated with financial industry and the percentage of ownership attributable to the largest shareholder. These findings implies that financial firms like banks and firms with ownership concentration discourage whistle-blowers to come forward and blow the whistle. Our results have policy implications for further strengthening whistleblowing protection in an emerging country like Brazil.