Who's on the Hot Seat for an SEC Investigation?
62 Pages Posted: 1 Aug 2018 Last revised: 8 May 2020
Date Written: May 8, 2020
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: Suggested Citation