Does the Public Disclosure of the SEC's Oversight Actions Matter?

64 Pages Posted: 18 Jul 2017

See all articles by Miguel Duro

Miguel Duro

IESE Business School

Jonas Heese

Harvard Business School

Gaizka Ormazabal

University of Navarra, IESE Business School

Date Written: July 2017

Abstract

This paper studies the effect of the public disclosure of the Securities and Exchange Commission (SEC)'s oversight activity on firms' financial reporting. We exploit a major change in the SEC's disclosure policy: in 2004, the SEC decided to make its comment-letter reviews publicly available. Using a novel dataset of SEC comment letters (CLs), we analyze the capital-market responses to firms' quarterly earnings releases during SEC reviews conducted before and after the policy change. We find that these responses increase significantly following the policy change. Consistent with public disclosure of CLs increasing market discipline, we find that this relative increase is stronger among firms with higher percentages of dedicated institutional investors or independent directors. In contrast, we do not find conclusive evidence that public disclosure of CLs increases SEC oversight intensity. Corroborating these results, we also document a set of changes firms make to their accounting reports during these reviews. Our results indicate that the public disclosure of regulatory oversight activities can enhance the effect of these activities.

Keywords: Disclosure Rules, SEC comment letters, SEC oversight

JEL Classification: M41

Suggested Citation

Duro, Miguel and Heese, Jonas and Ormazabal, Gaizka, Does the Public Disclosure of the SEC's Oversight Actions Matter? (July 2017). CEPR Discussion Paper No. DP12145. Available at SSRN: https://ssrn.com/abstract=3003922

Miguel Duro (Contact Author)

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Jonas Heese

Harvard Business School ( email )

Soldiers Field Road
Morgan Hall 397
Boston, MA 02163
United States

Gaizka Ormazabal

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

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