Regulator Continuity and Decision-Making Quality: Evidence from SEC Comment Letters

The Accounting Review, Forthcoming https://doi.org/10.2308/TAR-2021-0432

56 Pages Posted: 1 Apr 2021 Last revised: 19 May 2022

See all articles by Matthew Kubic

Matthew Kubic

University of Texas at Austin

Sara Toynbee

University of Texas at Austin

Date Written: May 10, 2022

Abstract

Staff at the U.S. Securities and Exchange Commission (SEC) conduct recurring reviews of firms’ filings to deter misconduct and facilitate investor access to high-quality information. We identify the names of SEC staff who work on a comment letter and examine whether their prior involvement (i.e., continuity) is associated with comment letter quality. Our results are consistent with continuity leading to lower quality comment letters. Continuity is associated with fewer substantive comments, agreed-upon disclosure changes, and greater similarity between consecutive comment letter reviews. These results are consistent with continuity increasing staffs’ tendency to focus on familiar issues and overlook other areas of potential deficiencies. Time, changes in firms’ operations, and increasing staffs’ feelings of accountability can mitigate the negative effect of continuity on comment letter quality. Our study suggests benefits to a fresh perspective in regulatory monitoring.

Keywords: SEC, comment letter, regulators, decision-making biases, continuity, rotation

JEL Classification: G18, M41, M48

Suggested Citation

Kubic, Matthew and Toynbee, Sara, Regulator Continuity and Decision-Making Quality: Evidence from SEC Comment Letters (May 10, 2022). The Accounting Review, Forthcoming https://doi.org/10.2308/TAR-2021-0432, Available at SSRN: https://ssrn.com/abstract=3802115 or http://dx.doi.org/10.2139/ssrn.3802115

Matthew Kubic

University of Texas at Austin ( email )

2317 Speedway
Austin, TX Texas 78712
United States

Sara Toynbee (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX Texas 78712
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
387
Abstract Views
1,543
Rank
144,883
PlumX Metrics