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http://ssrn.com/abstract=2125560
 
 

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Does the Revolving Door Affect the SEC’s Enforcement Outcomes?


Ed DeHaan


Stanford Graduate School of Business

Kevin Koh


Nanyang Technological University (NTU) - Nanyang Business School

Simi Kedia


Rutgers Business School

Shivaram Rajgopal


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

Abstract:     
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, M4

working papers series





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Date posted: August 7, 2012 ; Last revised: September 23, 2014

Suggested Citation

deHaan, Ed and Koh, Kevin and Kedia, Simi and Rajgopal, Shivaram, Does the Revolving Door Affect the SEC’s Enforcement Outcomes? (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. Available at SSRN: http://ssrn.com/abstract=2125560 or http://dx.doi.org/10.2139/ssrn.2125560

Contact Information

Ed DeHaan
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States

Kevin Koh
Nanyang Technological University (NTU) - Nanyang Business School ( email )
S3-B2C-96, Nanyang Avenue
Nanyang Business School , NTU
Singapore, 639798
Singapore
(+65) 6790 4096 (Phone)
Simi Kedia
Rutgers Business School ( email )
117 Levin
94 Rockafellar Road
Piscataway, NJ
United States
8484454195 (Phone)
Shivaram Rajgopal (Contact Author)
Emory University - Goizueta Business School ( email )
1300 Clifton Road
Atlanta, GA 30322-2722
United States
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