Does the Revolving Door Affect the SEC’s Enforcement Outcomes?
Stanford Graduate School of Business
Nanyang Technological University (NTU) - Nanyang Business School
Rutgers Business School
Emory University - Goizueta Business School
September 22, 2014
Rock Center for Corporate Governance at Stanford University Working Paper No. 187
Stanford University Graduate School of Business Research Paper No. 14-14
We investigate the consequences of the “revolving door” for trial lawyers at the SEC’s enforcement division. If future job opportunities make SEC lawyers exert more enforcement effort to develop and showcase their expertise, then the revolving door phenomenon will promote more aggressive regulatory activity (the “human capital” hypothesis). In contrast, SEC lawyers can relax enforcement efforts in order to develop networking skills and/or curry favor with prospective employers at private law firms (the “rent seeking” hypothesis”). We collect data on the career paths of 336 SEC lawyers that span 284 SEC civil cases against accounting misrepresentation over the period 1990-2007. We find overall evidence consistent with the “human capital” hypothesis as well as some cross-sectional evidence of “rent seeking.” The revolving door impacts a large spectrum of issues. Our study is limited and is not able to study administrative or non-accounting enforcement cases, the choice of which cases to pursue, the incentives of employees other than trial lawyers and how the revolving door affects rule making. Subject to these caveats, our results provide an important first empirical look into the effects of revolving door incentives on the SEC’s enforcement process.
Number of Pages in PDF File: 64
Keywords: SEC, enforcement, revolving door, financial reporting, lawyers, human capital
JEL Classification: G38, M4working papers series
Date posted: August 7, 2012 ; Last revised: September 23, 2014
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