Power of Whistleblowers: How Cautionary Voices from Social Media Impact Mutual Funds Manipulation

This paper investigates the effect of social media on mutual fund manipulation. We develop a simple model to reveal the disciplinary role of whistleblowers on social media through impacting the investment decisions of other investors on mutual funds. We theoretically and empirically show that whistleblowers’ cautionary postings can decrease fund inflows and increase the manipulation costs for fund managers, ultimately reducing their manipulative behavior. Our model highlights how social media amplifies the cautionary voices of whistleblowers, which effectively alleviates the agency issue caused by fund managers’ misconduct.