Who's on the Hot Seat for an SEC Investigation and How Do They Respond?

60 Pages Posted: 1 Aug 2018 Last revised: 21 Feb 2019

See all articles by Eric Holzman

Eric Holzman

The Ohio State University - Department of Accounting & Management Information Systems

Nathan T. Marshall

University of Colorado at Boulder - Department of Accounting

Brent Schmidt

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Date Written: February 18, 2019

Abstract

We create a dataset that tracks SEC downloads of corporate filings on EDGAR to study early-stage SEC surveillance and investigation activity. We find that SEC downloads are positively (negatively) associated with firm visibility and complexity (outside monitoring). Further, early-stage SEC investigations, proxied by abnormal SEC downloads, are sparked not only by non-routine accounting events, but also by earnings characteristics, tips from outsiders, personnel events, operating events and negative performance shocks. Next, we use abnormal SEC downloads to identify firms with high levels of SEC scrutiny and examine determinants of the choice to disclose SEC investigations. The choice to disclose is positively (negatively) associated with litigation risk, media coverage, long-term institutional ownership, and board independence (accounting system quality and strong legal resources). Finally, we provide evidence that investors do not fully impound the negative implications of these disclosures, particularly when the disclosure uses complex language or is bundled with other information.

Keywords: SEC, Surveillance, Enforcement, Investigations, Voluntary Disclosure

JEL Classification: G38, K22, K42, L51, M41

Suggested Citation

Holzman, Eric and Marshall, Nathan T. and Schmidt, Brent, Who's on the Hot Seat for an SEC Investigation and How Do They Respond? (February 18, 2019). Available at SSRN: https://ssrn.com/abstract=3223815 or http://dx.doi.org/10.2139/ssrn.3223815

Eric Holzman (Contact Author)

The Ohio State University - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Nathan T. Marshall

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States

Brent Schmidt

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

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