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
Date Written: May 10, 2022
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: Suggested Citation