Politician Careers and SEC Enforcement Against Financial Misconduct

107 Pages Posted: 27 Feb 2020

See all articles by Mihir N. Mehta

Mihir N. Mehta

University of Michigan at Ann Arbor

Wanli Zhao

Renmin University of China

Date Written: January 29, 2020


We document that corporate financial misconduct has significant consequences for politicians’ election outcomes and, in particular, those politicians that serve on U.S. congressional committees with SEC-relevant oversight responsibilities (“SEC-relevant politicians”). These politicians display a 31% greater likelihood of losing a reelection campaign after a local firm faces SEC enforcement for corporate financial misconduct. We also document that SEC-relevant politicians appear to influence the SEC to limit career effects due to the potential consequences from enforcement against local firms. First, the timing of enforcement action announcements around SEC-relevant politicians’ elections appears opportunistic. Second, firms in the districts of SEC-relevant politicians are less likely to receive SEC enforcement actions relative to other firms and, when faced with enforcement, receive smaller penalties. Collectively, these results are consistent with the argument that politicians’ career concerns impede the SEC’s enforcement efforts.

Keywords: Political Economy, Corporate Governance, Securities and Exchange Commission, Senate Committee on Banking, Housing, and Urban Affairs, House Committee on Financial Services, AAER, Congress

JEL Classification: G34, M42, M48

Suggested Citation

Mehta, Mihir N. and Zhao, Wanli, Politician Careers and SEC Enforcement Against Financial Misconduct (January 29, 2020). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3532704

Mihir N. Mehta (Contact Author)

University of Michigan at Ann Arbor ( email )

701 Tappan Ave
Ann Arbor, MI 48109
United States

HOME PAGE: http://www.mihirnmehta.com

Wanli Zhao

Renmin University of China ( email )

59 Zhongguancun Street
Beijing, 100872

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