The Effect of SEC Reviewers on Comment Letters

58 Pages Posted: 21 Nov 2017 Last revised: 28 Jan 2020

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 3 versions of this paper

Date Written: January 2020

Abstract

Prior research suggests that even for the same decision task there will be variation in decision outcomes across decision makers due to idiosyncrasies in their styles. This variation brings up a fundamental challenge in the realm of regulations where consistency is of great importance. This study examines 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 a significant role in explaining the cross-sectional variation in filing review outcomes, even after holding firm and disclosure attributes constant. The reviewer style is persistent across firms and time. We also find that the likelihood of restatement during the review process and investor response to the release of comment letter information vary systemically with reviewer style. This finding suggests that SEC reviewers’ idiosyncratic style has implications for shareholders and the market, in addition to the costs imposed on registrant firms in resolving comment letter issues.

Keywords: SEC Reviewers, Reviewer Style, Comment Letters, Restatements

JEL Classification: M41, M48

Suggested Citation

Baugh, Matthew and Kim, Kyonghee and Lee, Kwang, The Effect of SEC Reviewers on Comment Letters (January 2020). 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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