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

63 Pages Posted: 21 Nov 2017

See all articles by Matthew Baugh

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 17, 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 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

Baugh, Matthew and Kim, Kyonghee and Lee, Kwang, The Effect of SEC Reviewers on Comment Letters and Financial Reporting Quality (November 17, 2017). KAIST College of Business Working Paper Series No. 2017-021. Available at SSRN: https://ssrn.com/abstract=3074127 or http://dx.doi.org/10.2139/ssrn.3074127

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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