The Effect of SEC Reviewers on Comment Letters

Posted: 6 Oct 2021

See all articles by Matthew Baugh

Matthew Baugh

Arizona State University (ASU) - School of Accountancy

Kyonghee Kim

Michigan State University

Kwang J. Lee

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Multiple version iconThere are 3 versions of this paper

Date Written: September 3, 2021

Abstract

Prior research suggests that even for the same decision task there will be variation in decision outcomes across decision makers due to idiosyncrasies in their styles. This variation brings up a fundamental challenge in the realm of regulations, where consistency of application is of great importance. This study examines whether the idiosyncrasies of individual employees of the SEC contribute to inconsistent regulatory outcomes. Using a sample of SEC comment letters, we show that SEC reviewers’ idiosyncratic style plays a significant role in explaining the cross-sectional variation in filing review outcomes, even after holding firm and disclosure attributes constant. In addition, the likelihood of restatement during the review process varies systemically with the reviewers’ review style. These findings suggest that reviewer style influences shareholders and other stakeholders via its impact on the costs in resolving comment letter issues and the quality of corporate disclosure. They also have public policy implications for the way financial reporting rules and regulations are applied.

Keywords: SEC reviewers, reviewer style, comment letters, restatements, disclosure quality, regulatory consistency

Suggested Citation

Baugh, Matthew and Kim, Kyonghee and Lee, Kwang J., The Effect of SEC Reviewers on Comment Letters (September 3, 2021). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3920289

Matthew Baugh (Contact Author)

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Kyonghee Kim

Michigan State University ( email )

N206 North Business Complex
632 Bogue Street
East Lansing, MI 48824
United States
517-432-2920 (Phone)

Kwang J. Lee

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 02455
Korea, Republic of (South Korea)

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