Comments that Count: Corporate Influence in SEC Governance Rulemaking

Abstract

We investigate the motivations, effectiveness, and shareholder-value implications of public firms' attempts to influence the SEC's governance-related rulemaking. Our analysis leverages large language model-assisted text analysis and citation tracking to examine comment letters submitted during the rulemaking process. We find that public firms predominantly submit pro-management comment letters and that these firms are often associated with weaker governance characteristics. Notably, public firms' letters are more likely to be cited in final rules and lead to material changes aligned with their positions—particularly when advocating for pro-management changes. Moreover, public firms whose pro-management letters are cited in pro-management material changes experience significantly negative abnormal stock returns upon the release of the final rule. These findings suggest that public firms leverage the rulemaking process to protect entrenched managerial interests at the expense of shareholder value.

Keywords: Comment letters, SEC rulemaking, Governance regulation, Managerial entrenchment, Corporate influence

JEL Classification: G18, G34, G38, D72, D78