The Black Box of SEC Monitoring and Regulatory Spillover

64 Pages Posted: 22 Nov 2019

See all articles by Lorien Stice-Lawrence

Lorien Stice-Lawrence

University of Southern California - Marshall School of Business

Date Written: November 2019

Abstract

In spite of its focus on transparency, the SEC remains a black box. I peer into this black box by analyzing downloads of regulatory filings by SEC employees to provide granular evidence on how the SEC allocates its scarce monitoring resources. I document that SEC employees respond quickly to potential monitoring triggers and that this disclosure monitoring “spills over” among firms. That is, firms are subject to greater monitoring if the SEC has recently monitored the disclosures of their industry peers. Further, restatements and spikes in negative media coverage, whose timing is relatively exogenous with respect to internal SEC activities, both lead to large increases in SEC disclosure monitoring and subsequent spillover, ruling out scheduled industry sweeps as an alternative explanation. In addition, regulatory spillover is strongest when there is evidence of noncompliance and between firms that are assigned to the same regional or industry SEC office. These results suggest that knowledge spillovers allow SEC employees to reapply information obtained about individual firms to identify and monitor similar targets at a lower cost.

Keywords: Disclosure Monitoring, Securities & Exchange Commission, Knowledge Spillover, Information Retrieval

JEL Classification: G18, G38, M4

Suggested Citation

Stice-Lawrence, Lorien, The Black Box of SEC Monitoring and Regulatory Spillover (November 2019). Available at SSRN: https://ssrn.com/abstract=3485468 or http://dx.doi.org/10.2139/ssrn.3485468

Lorien Stice-Lawrence (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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