The Spillover Effect of SEC Comment Letters on Qualitative Corporate Disclosure: Evidence from the Risk Factor Disclosure

52 Pages Posted: 20 Jan 2015 Last revised: 24 Mar 2019

See all articles by Stephen V. Brown

Stephen V. Brown

University of Connecticut - Department of Accounting

Xiaoli (Shaolee) Tian

Georgetown University - Department of Accounting and Business Law

Jenny Wu Tucker

University of Florida - Warrington College of Business Administration

Date Written: February 27, 2018

Abstract

In this study we use the recently mandated risk factor disclosure to examine the spillover effect of the SEC review of qualitative corporate disclosure. We find that firms not receiving any comment letter (“No-letter Firms”) modify their subsequent year’s disclosures to a larger extent if the SEC has commented on the risk factor disclosure of (1) the industry leader, (2) a close rival, or (3) numerous industry peers. We refer to this effect as “spillover.” Further, we find that after SEC comments on the industry leader’s disclosure, No-letter Firms also provide more firm-specific disclosures in the subsequent year. The increased disclosure specificity reduces these firms’ likelihood of receiving SEC risk disclosure comments on their new filings. Our evidence suggests an indirect effect of the SEC review of qualitative disclosure.

Keywords: comment letter, risk disclosure, spillover, deterrence

JEL Classification: G11, G14, G24

Suggested Citation

Brown, Stephen V. and Tian, Xiaoli (Shaolee) and Tucker, Jenny Wu, The Spillover Effect of SEC Comment Letters on Qualitative Corporate Disclosure: Evidence from the Risk Factor Disclosure (February 27, 2018). Contemporary Accounting Research, 2018, Vol 35 (2): 622-656. Available at SSRN: https://ssrn.com/abstract=2551451 or http://dx.doi.org/10.2139/ssrn.2551451

Stephen V. Brown

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

HOME PAGE: http://www.stephenvbrown.com/

Xiaoli (Shaolee) Tian

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

Jenny Wu Tucker (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States
352-273-0214 (Phone)
352-392-7962 (Fax)

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