Events

Prof. Nemit Shroff
School of Management Distinguished Professor
Professor of Accounting
MIT Sloan School of Management

We examine the impact of U.S. immigration policy, specifically the H-1B visa program, on the likelihood of financial misconduct in companies. We argue that employers have leverage over employees on an H-1B visa because such visa holders must maintain H-1B-eligible employment in order to legally reside in the U.S. We posit that companies relying on H-1B visas to hire workers in accounting/finance roles have an increased ability to misreport their financial statements due to the greater costs H-1B employees face if they are unexpectedly fired for not following the demands of their bosses or for blowing the whistle on misconduct. Using the sharp reduction in the H-1B visa cap in 2004 as a shock to such employment, we find that firms that relied on this visa program for accounting roles pre-shock experience a 2.4 percentage point decline in accounting irregularities post-shock. Cross-sectional tests show that the reduction in irregularities is greater in companies where employees on an H-1B visa have (1) greater influence on financial reporting and (2) fewer outside opportunities. In addition, the reduction in irregularities is greater in companies where the companies’ auditors are more acquiescent with company management. We corroborate our findings using the outcome of H-1B visa lotteries as shocks to such employment.