Protecting Wall Street or Main Street: The Influence of Ownership Characteristics on SEC Monitoring and Enforcement

Posted: 1 Jan 2020

See all articles by Michael Iselin

Michael Iselin

University of Minnesota - Twin Cities - Department of Accounting

Bret A. Johnson

George Mason University - Department of Accounting

Jacob Ott

University of Minnesota - Twin Cities - Department of Accounting

Jacob Raleigh

University of Minnesota - Twin Cities - Department of Accounting

Date Written: December 12, 2019

Abstract

In this study we examine whether ownership characteristics of a firm influence the likelihood of SEC monitoring and enforcement. Although the SEC seeks to protect all investors, we posit that certain investors are more susceptible to information asymmetry problems due to differences in investment resources or expertise. We specifically ask whether the percentage of retail ownership of a firm affects the likelihood that the firm is subject to monitoring and enforcement by the two largest divisions of the SEC. We find a negative association between retail ownership percentage and SEC monitoring. In contrast, we find a positive association between retail ownership percentage and SEC enforcement. These results suggest that the SEC generally focuses its monitoring efforts on institutionally-owned firms. However, following the most egregious cases of misreporting that rise to the level of a restatement, the SEC shifts its focus to protect retail investors via its enforcement activities.

Keywords: SEC monitoring, SEC enforcement, retail investors, comment letters, AAERs

JEL Classification: M41, M48

Suggested Citation

Iselin, Michael and Johnson, Bret A. and Ott, Jacob and Raleigh, Jacob, Protecting Wall Street or Main Street: The Influence of Ownership Characteristics on SEC Monitoring and Enforcement (December 12, 2019). Available at SSRN: https://ssrn.com/abstract=3503081

Michael Iselin (Contact Author)

University of Minnesota - Twin Cities - Department of Accounting ( email )

271 19th Avenue South
Room 645 Mgt. Econ. Building
Minneapolis, MN 55455
United States

Bret A. Johnson

George Mason University - Department of Accounting ( email )

Fairfax, VA
United States
703-993-8185 (Phone)

Jacob Ott

University of Minnesota - Twin Cities - Department of Accounting ( email )

271 19th Avenue South
Room 645 Mgt. Econ. Building
Minneapolis, MN 55455
United States

Jacob Raleigh

University of Minnesota - Twin Cities - Department of Accounting ( email )

271 19th Avenue South
Room 645 Mgt. Econ. Building
Minneapolis, MN 55455
United States

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