How Busyness Influences SEC Compliance Activities: Evidence from the Filing Review Process and Comment Letters

48 Pages Posted: 7 Mar 2018

See all articles by Katherine Gunny

Katherine Gunny

University of Colorado at Denver

Judith Hermis

Naval Postgraduate School

Date Written: February 27, 2018

Abstract

Compliance plays an important role in the financial reporting oversight function of the U.S. Securities and Exchange Commission (SEC). SEC compliance actions include reviewing firm filings and issuing comment letters on those filings. The SEC’s compliance activities are seasonally compressed because over 70 percent of registrants have a December fiscal year-end. Prior literature finds that busyness leads to negative outcomes in other financial reporting settings and that comment letters play an important role in the assessment of firm value. Therefore, understanding how busyness influences SEC compliance activities is important. As such, we examine how busyness impacts the frequency, scope, and timeliness of comment letters. Our results suggest that, despite issuing fewer comment letters when busy, the SEC focuses its limited resources on the most severe cases of disclosure noncompliance. They also extend the amount of time between receiving a firm’s filing and issuing a comment letter. We find no evidence to suggest that the SEC misses more serious compliance issues when busy. Our results have implications for policymakers responsible for allocating resources to the SEC.

Suggested Citation

Gunny, Katherine and Hermis, Judith, How Busyness Influences SEC Compliance Activities: Evidence from the Filing Review Process and Comment Letters (February 27, 2018). Available at SSRN: https://ssrn.com/abstract=3131201 or http://dx.doi.org/10.2139/ssrn.3131201

Katherine Gunny

University of Colorado at Denver ( email )

Box 173364
1250 14th Street
Denver, CO 80217
United States

Judith Hermis (Contact Author)

Naval Postgraduate School ( email )

555 Dyer Road
Monterey, CA 93943
United States

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