Do the SEC’s Enforcement Preferences Affect Corporate Misconduct?

Kedia, Simi; Rajgopal, Shivaram

doi:10.2139/ssrn.1364967

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Do the SEC’s Enforcement Preferences Affect Corporate Misconduct?

51 Pages Posted: 23 Mar 2009 Last revised: 13 Feb 2011

See all articles by Simi Kedia

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

There are 2 versions of this paper

Date Written: january 1, 2011

Abstract

Recent frauds have questioned the efficacy of the SEC’s enforcement program. We hypothesize that differences in firms’ information sets about SEC enforcement and constraints facing the SEC affect firms’ proclivity to adopt aggressive accounting practices. We find that firms located closer to the SEC and in areas with greater past SEC enforcement activity, both proxies for firms’ information about SEC enforcement, are less likely to restate their financial statements. Consistent with the resource-constrained SEC view, the SEC is more likely to investigate firms located closer to its offices. Our results suggest that regulation is most effective when it is local.

Keywords: SEC, Corporate Fraud

JEL Classification: G28, G38

Suggested Citation: Suggested Citation

Kedia, Simi and Rajgopal, Shivaram, Do the SEC’s Enforcement Preferences Affect Corporate Misconduct? (january 1, 2011). Available at SSRN: https://ssrn.com/abstract=1364967 or http://dx.doi.org/10.2139/ssrn.1364967