Protecting Wall Street or Main Street: The Influence of Ownership Characteristics on SEC Monitoring and Enforcement
Posted: 1 Jan 2020
Date Written: December 12, 2019
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: Suggested Citation