The Effect of SEC Reviewers on Comment Letters and Financial Reporting Quality
63 Pages Posted: 21 Nov 2017
Date Written: November 17, 2017
We examine whether the idiosyncrasy of individual employees of U.S. financial regulators contributes to inconsistent regulatory outcomes. Using a sample of SEC comment letter conversations referencing company annual filings, we show that SEC reviewers’ idiosyncratic style plays an economically and statistically significant role in explaining the cross-sectional variation in the filing review outcomes, even after holding the firm and disclosure attributes constant. We also show that the reviewer style reflected in filing review outcomes is persistent across firms and time. Finally, we find that reviewers with a stricter review style are associated with improved financial reporting quality subsequent to the issuance of a SEC comment letter. These findings together 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, M48
Suggested Citation: Suggested Citation