The Effect of SEC Reviewers on Comment Letters and Financial Reporting Quality

49 Pages Posted: 13 Nov 2017  

Matthew Baugh

Arizona State University (ASU) - School of Accountancy

Kyonghee Kim

Michigan State University

Kwang Lee

Korea Advanced Institute of Science and Technology (KAIST)

Multiple version iconThere are 2 versions of this paper

Date Written: November 9, 2017

Abstract

We examine whether the idiosyncrasy of individual employees of U.S. financial regulators contributes to inconsistent regulatory outcomes. Using a sample of SEC comment letters, we show that SEC reviewers’ idiosyncratic style plays an economically and statistically significant role in explaining the cross-sectional variation in filing review outcomes, even after holding firm and disclosure attributes constant. We also show that the reviewer style is persistent across firms and time. Finally, we find that reviewers with a stricter style are associated with improved financial reporting quality. These findings suggest that individual SEC reviewers have significant influence on the SEC filing review process.

Keywords: SEC Reviewers, Reviewer Style, Comment Letters, Financial Reporting Quality

JEL Classification: M41, M45, M48

Suggested Citation

Baugh, Matthew and Kim, Kyonghee and Lee, Kwang, The Effect of SEC Reviewers on Comment Letters and Financial Reporting Quality (November 9, 2017). Available at SSRN: https://ssrn.com/abstract=3068223 or http://dx.doi.org/10.2139/ssrn.3068223

Matthew Baugh (Contact Author)

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Kyonghee Kim

Michigan State University ( email )

N206 North Business Complex
632 Bogue Street
East Lansing, MI 48824
United States
517-432-2920 (Phone)

Kwang Lee

Korea Advanced Institute of Science and Technology (KAIST) ( email )

373-1 Kusong-dong
Yuson-gu
Taejon 305-701, 130-722
Korea, Republic of (South Korea)

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