1 When does financial misconduct result in external whistle-blowing: A comparison between external whistle-blowing and internal reporting. GLADYS LEE, The Australian National University* NEIL FARGHER, The Australian National University Revised 6 June 2014 Abstract External whistle-blowing is generally more costly to a firm than internal reporting. The purpose of this study is to examine the factors associated with the likelihood that financial misconduct results in external whistle-blowing in comparison to internal reporting. Using a sample of alleged financial misconduct reported in the press, we find that financial misconduct is more likely to result in external whistle-blowing when an external immunity policy was provided, when the perpetrator of misconduct has greater power, and when collusion was involved. The results indicate a lower likelihood of external whistle-blowing when an internal reporting policy was provided, when the whistle-blower was an employee, and when there was greater variable compensation. External whistle-blowing is also associated with negative consequences such as a lower share return, a greater likelihood of a subsequent lawsuit, a takeover, a change in top management or a change in the company’s name. Keywords: Financial misconduct, Fraud, Whistle-blowing * We gratefully acknowledge comments from Juliana Ng, the participants at the 2012 Taiwan Accounting Association Conference and the two anonymous reviewers. We also thank Isabel Wang for research assistance. Corresponding author: Gladys Lee, gladys.lee@anu.edu.au, (+61) 2 612 57326, Research School of Accounting and Business Information Systems, ANU College of Business and Economics, Hanna Neumann Building 21, The Australian National University, Canberra ACT 0200, Australia.