Regulatory Spillover and Monitoring Frictions at the SEC

56 Pages Posted: 22 Nov 2019 Last revised: 1 Jun 2020

See all articles by Lorien Stice-Lawrence

Lorien Stice-Lawrence

University of Southern California - Marshall School of Business

Date Written: May 2020

Abstract

I investigate how the Securities and Exchange Commission (SEC) monitors firms by analyzing internet downloads of regulatory filings by SEC employees. I find that SEC employees respond to negative financial reporting events, such as restatements and spikes in negative media coverage, by monitoring the peers of focal firms (“Regulatory Spillover”). This is consistent with the SEC using peer information to identify potential violators. However, there is less spillover when peer firms are assigned to different regional or industry offices, even when those offices are located within the same building, suggesting that SEC employees are poor at sharing information across organizational boundaries. Further, firms with names later in the alphabet are less likely to be monitored, indicating that SEC employees use simple heuristics when prioritizing targets. These findings contribute to the literature by exploring the monitoring activities through which the SEC identifies noncompliance and by identifying frictions that impair efficient monitoring.

Keywords: Disclosure Monitoring; Securities & Exchange Commission; Regulatory Spillover; Information Retrieval; Monitoring Frictions

JEL Classification: G18, G38, M4

Suggested Citation

Stice-Lawrence, Lorien, Regulatory Spillover and Monitoring Frictions at the SEC (May 2020). 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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