Do the SEC’s Enforcement Preferences Affect Corporate Misconduct?

51 Pages Posted: 28 Jan 2011 Last revised: 17 Jun 2011

Simi Kedia

Rutgers Business School

Shivaram Rajgopal

Columbia Business School

Multiple version iconThere are 2 versions of this paper

Date Written: January 28, 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.

Suggested Citation

Kedia, Simi and Rajgopal, Shivaram, Do the SEC’s Enforcement Preferences Affect Corporate Misconduct? (January 28, 2011). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1750371

Simi Kedia

Rutgers Business School ( email )

117 Levin
94 Rockafellar Road
Piscataway, NJ
United States
8484454195 (Phone)

Shivaram Rajgopal (Contact Author)

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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