Regulatory transparency and the alignment of private and public enforcement: Evidence from the public disclosure of SEC comment letters

66 Pages Posted: 3 Sep 2020 Last revised: 20 Jul 2021

See all articles by Amy P. Hutton

Amy P. Hutton

Boston College - Carroll School of Management

Susan Shu

Boston College - Carroll School of Management

Xin Zheng

University of British Columbia

Date Written: June 17, 2021

Abstract

Does enhanced regulatory transparency facilitate alignment of private and public enforcement? Utilizing the SEC’s 2004 decision to disclose its comment letters publicly, we explore the actions of the SEC and shareholder litigants. We find the two parties converge more on enforcement targets after the public disclosure. The increased alignment is attributable to public scrutiny of SEC oversight enhancing regulator incentives and reducing regulatory capture, and to shareholder plaintiffs gaining information previously accessible only by regulators, enabling litigants to identify cases with “merit.” These findings suggest regulatory transparency enhances the complementarity of public and private enforcement, potentially improving enforcement outcomes.

Keywords: Regulation, SEC, securities litigation, class action lawsuit, regulatory transparency

JEL Classification: G18, G38, K41, K42, L51, M40, M41, M48

Suggested Citation

Hutton, Amy P. and Shu, Susan and Zheng, Xin, Regulatory transparency and the alignment of private and public enforcement: Evidence from the public disclosure of SEC comment letters (June 17, 2021). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3684840 or http://dx.doi.org/10.2139/ssrn.3684840

Amy P. Hutton

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617 552 1951 (Phone)

Susan Shu (Contact Author)

Boston College - Carroll School of Management ( email )

Boston College
140 Commonwealth Ave.
Chestnut Hill, MA 02167
United States
617-552-1759 (Phone)

Xin Zheng

University of British Columbia ( email )

2053 Main Mall
Vancouver, B.C. V6T 1Z2
Canada

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