The Revolving Door and the SEC's Enforcement Outcomes: Initial Evidence from Civil Litigation
Stanford University - Graduate School of Business
Rutgers Business School
Nanyang Technological University (NTU) - Nanyang Business School
Emory University - Goizueta Business School
February 23, 2015
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 motivate SEC lawyers to develop and/or showcase their enforcement 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. Our overall evidence is consistent with the “human capital” hypothesis. However, we find some evidence of “rent seeking” when SEC lawyers are based in Washington DC and when defense firms employ more former SEC lawyers. The revolving door likely impacts numerous aspects of SEC regulation setting and enforcement. This study examines accounting-related civil cases and is not able to study administrative or non-accounting enforcement cases. Further, the study does not address the choice of which cases to pursue, the incentives of employees other than trial lawyers, or how the revolving door affects rule making. Subject to these caveats, the results provide an important first 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, M4
Date posted: August 7, 2012 ; Last revised: March 26, 2015
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
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