SEC Monitoring of Foreign Firms’ Disclosures in the Presence of Foreign Regulators

51 Pages Posted: 10 Apr 2016 Last revised: 25 Jan 2019

See all articles by James P. Naughton

James P. Naughton

University of Virginia, Darden School of Business

Rafael Rogo

Indiana University - Kelley School of Business - Department of Accounting

Jayanthi Sunder

University of Arizona - Eller College of Management

Ray Zhang

University of British Columbia (UBC) - Sauder School of Business

Date Written: August 1, 2018

Abstract

SEC comment letters indicate that the SEC has reviewed the firm's filings and identified a disclosure issue. Using the existence of an SEC comment letter as a proxy for SEC monitoring, we document a negative association between the level of SEC monitoring of foreign firms and the strength of those foreign firms’ home-country institutions, consistent with the idea that the SEC implicitly shares its regulatory duties with international securities regulators. We find that foreign cross-listed firms are subject to lower monitoring intensity than foreign firms listed only on US exchanges, but do not find a statistically significant difference in monitoring between foreign firms listed only on US exchanges and US firms. These findings suggest that it is the presence of another regulator that drives the intensity of SEC monitoring. We also find that US investor holdings are positively associated with the level of SEC oversight, suggesting that the SEC focuses its resources on firms that pose a greater risk to US investors. Collectively, our analyses show that two countervailing forces drive the SEC’s choice to monitor foreign firms. On the one hand, the SEC reduces monitoring intensity when it can rely on the public and private enforcement institutions in the foreign firm’s home country. On the other hand, the SEC provides increased monitoring of certain foreign firms when investors on US exchanges have greater investment exposure in those firms.

Keywords: regulatory coordination, cross-list, bonding, SEC, comment letters

JEL Classification: G15, G18, M41

Suggested Citation

Naughton, James P. and Rogo, Rafael and Sunder, Jayanthi and Zhang, Ray, SEC Monitoring of Foreign Firms’ Disclosures in the Presence of Foreign Regulators (August 1, 2018). Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2760743 or http://dx.doi.org/10.2139/ssrn.2760743

James P. Naughton

University of Virginia, Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Rafael Rogo (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Jayanthi Sunder

University of Arizona - Eller College of Management ( email )

School of Accountancy
1130 E Helen St.
Tucson, AZ 85721
United States
520-626-8489 (Phone)

Ray Zhang

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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