Regulatory Oversight of Financial Reporting: Securities and Exchange Commission Comment Letters

Abstract:     
The Securities and Exchange Commission (SEC) reviews the filings (10Q, 10K, S1, etc.) submitted to them. If the review identifies potential deficiencies, the SEC staff send the company a comment letter seeking clarification, additional information, and ultimately perhaps, revision of the filing or future filings. We explore the content and resolution of SEC comment letters and then examine the informational consequences of letter resolution. The content analysis shows that nearly half of all comments involve accounting application, financial reporting and disclosure issues. More than 17% of our sample immediately amend filings to resolve comment letters and financial statements and/or footnotes are frequently revised. Following comment letter resolution, ERCs increase, return volatility and trading volume around earning announcements decline, analyst forecast accuracy improves and forecast dispersion declines. We conclude the SEC’s oversight has beneficial informational effects.

Number of Pages in PDF File: 58

Keywords: Securities and Exchange Commission (SEC), Comment Letter, Disclosure, Enforcement, Regulation

JEL Classification: G12, G14, G18, M48

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