How Busyness Influences SEC Compliance Activities: Evidence from the Filing Review Process and Comment Letters

Gunny, Katherine; Hermis, Judith

doi:10.2139/ssrn.3131201

Cited by 9 publications

(21 citation statements)

References 18 publications

(23 reference statements)

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“…Only one study, to our knowledge, directly examines the effect of SEC resource constraints on the comment letter process. Gunny and Hermis () exploit the possibility that the SEC's workload is seasonally compressed because a large majority of registrants has a December fiscal year‐end. They find that SEC busyness decreases the likelihood of receiving a comment letter and increases the amount of time necessary to resolve the comment letter, but find no evidence that the SEC misses restatements when it is busy.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…Second, transactional filings can act as shocks to SEC review capacity. Budgetary constraints can affect the overall quality of SEC oversight (Blackburne ), and recent research suggests that the SEC strategically focuses on the most severe cases of disclosure noncompliance during periods of predictable busyness (Gunny and Hermis ). However, extant research has not considered the effects of unexpected resource constraints that could arise due to the combination of SEC institutional requirements and unpredictable economic events.…”

Section: Introductionmentioning

confidence: 99%

“…Although we expect a negative relation between unexpected SEC resource constraints and comment letter quality, there are several reasons why this need not be true. First, the SEC might balance both SOX‐mandated reviews of periodic reports and reviews of transactional filings, similar to how the SEC balances predictable resource constraints (Gunny and Hermis ). For example, the SEC could avoid resource constraints in the current period by delaying the periodic reviews that would not violate the SOX three‐year review requirement.…”

Section: Introductionmentioning

confidence: 99%

“…Second and relatedly, this study also informs on the impact of resource limitations on regulators' ability to monitor the capital markets. Prior studies examine resource constraints in terms of geographic proximity (Kedia and Rajgopal ), dollars allocated to each SEC industry office (Blackburne ), or predictable busyness created by a predominance of calendar year‐end filers (Gunny and Hermis ). In contrast, we use a novel measure of resource constraints based on unpredictable shocks of economic activity to examine comment letter quality and the resulting market implications.…”

Section: Introductionmentioning

confidence: 99%

“…In addition, beginning in 2011, the SEC added an additional financial services industry office. However, because this industry office issued a low number of filings and because our spike measure uses lagged counts, we follow prior research (e.g., Blackburne ; Gunny and Hermis ) in combining the two financial services offices.…”

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confidence: 99%

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Unexpected SEC Resource Constraints and Comment Letter Quality

Ege

Glenn

Robinson

2019

Contemporary Accting Res

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We investigate whether reviews of transactional filings by the SEC unexpectedly constrain SEC resources, leading to lower quality comment letters for periodic reports. The Sarbanes‐Oxley Act requires the SEC to review periodic reports (e.g., 10‐Ks) at least once every three years. However, the SEC also reviews transactional filings (e.g., initial public offerings and acquisitions), which are unpredictable and often occur in waves. We find comment letters for periodic reports are of lower quality (in terms of outputs, inputs, and firm responses) during periods of abnormally high transactional filings. We also find that comment letters issued during periods of abnormally high versus low transactional filings are associated with increased information asymmetry and lower earnings response coefficients in the quarter after the resolution of the comment letter. Overall, our results suggest that unexpected resource constraints affect the quality of SEC oversight of periodic reports.

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Section: Hypothesis Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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confidence: 99%

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Unexpected SEC Resource Constraints and Comment Letter Quality

Ege

Glenn

Robinson

2019

Contemporary Accting Res

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SEC review of non‐GAAP comment letters in family firms

Khalil

O’Shaughnessy

Twardus

2022

J Corp Accounting Finance

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In this paper, we investigate whether the Securities and Exchange Commission (SEC)'s review of voluntary non-GAAP disclosures in 10-K reports varies with firm ownership structure. Relying on the voluntary disclosure literature, we argue that managers voluntarily disclose financial and non-financial information in order to resolve information asymmetries arising from firm ownership structure. We find, using a sample of firms over the period 2006-2018, that family ownership reduces the likelihood of receiving a comment letter related to non-GAAP disclosures. We also show that family firms take a longer period and exchange a larger number of correspondence letters with the SEC before the latter closes the case. These findings contribute to the family firm literature and expand the literature investigating the SEC review of voluntary non-GAAP disclosures.

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