Cracks of Opportunity: Unveiling the Impact of Misconduct Disclosure on Workers’ Careers

Abstract

Organizational misconduct and its disclosure can have lasting effects on the careers of key organizational members, yet little is known about its impact on lower-ranked employees. Prior research focuses primarily on elites, offering only a partial understanding of how disclosure shapes outcomes across the broader workforce. To extend this line of inquiry, we develop a duallens theoretical framework that conceptualizes misconduct disclosure as both discrediting and reformative. While disclosure can stigmatize employees through association with wrongdoing, it can also disrupt exploitative organizational arrangements, potentially creating opportunities for upward mobility among lower-ranked workers. Leveraging detailed firm-level microdata and Brazil’s major state-led anti-corruption crackdown as an exogenous shock, we find evidence consistent with our framework: upper white-collar workers experience significant wage declines and are more likely to exit the formal sector, whereas blue-collar employees who remain in or reenter formal employment experience large and persistent wage gains. These effects hold across gender and racial groups and withstand multiple robustness checks, suggesting a wage-leveling mechanism triggered by the disruption of exploitative pay structures. Together, our findings reveal how misconduct disclosure, while punitive for some, can unintentionally advantage others by reshaping organizational hierarchies and reducing pay inequality.