Who's on the Hot Seat for an SEC Investigation?

62 Pages Posted: 1 Aug 2018 Last revised: 8 May 2020

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: May 8, 2020

Abstract

While decades of research focuses on the effectiveness of public enforcement and managers’ incentives for financial misconduct, little is known about how the SEC selects targets for investigation. Using SEC employee downloads of firm filings and a new database of formal SEC investigations, we triangulate the determinants of SEC investigatory activity. We then use these results to revisit prior financial misconduct research. After accounting for the SEC’s case selection process, two motives examined in prior work (stock-based compensation and insider trading) are no longer significant determinants of AAERs, whereas other motives (financing needs and debt covenants) increase in economic significance.

Keywords: SEC, Investigations, Enforcement, Misconduct Incentives

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? (May 8, 2020). 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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