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Unexpected SEC Resource Constraints and Comment Letter Quality†

Author

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  • Matthew Ege
  • Jennifer L. Glenn
  • John R. Robinson

Abstract

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. Restrictions inattendues des ressources de la SEC et qualité des lettres de commentaires Les auteurs se demandent si les examens des déclarations relatives aux opérations auxquels procède la SEC restreignent de façon inattendue les ressources de la SEC au point de réduire la qualité des lettres de commentaires sur les rapports périodiques. La Loi Sarbanes Oxley exige que la SEC examine les rapports périodiques (dont les formulaires 10‐K) au moins une fois tous les trois ans. La SEC examine cependant aussi les déclarations relatives aux opérations (PAPE et acquisitions par exemple), dont le dépôt est imprévisible et qui arrivent souvent par vagues. Les auteurs constatent que la qualité des lettres de commentaires relatives aux rapports périodiques diminue (en termes de résultats, d'intrants et de réactions des sociétés) durant les périodes où la quantité de déclarations relatives aux opérations est anormalement élevée. Ils constatent également que les lettres de commentaires publiées au cours de périodes durant lesquelles la quantité de déclarations relatives aux opérations est anormalement élevée, contrairement à celles durant lesquelles cette quantité est faible, sont associées à une asymétrie accrue de l'information et à des coefficients plus faibles de réaction au résultat dans le trimestre suivant la résolution de ces lettres de commentaires. Dans l'ensemble, les résultats de l’étude laissent croire que des restrictions inattendues des ressources dont elle dispose influent sur la qualité de la surveillance exercée par la SEC sur les rapports périodiques.

Suggested Citation

  • Matthew Ege & Jennifer L. Glenn & John R. Robinson, 2020. "Unexpected SEC Resource Constraints and Comment Letter Quality†," Contemporary Accounting Research, John Wiley & Sons, vol. 37(1), pages 33-67, March.
    • Handle: RePEc:wly:coacre:v:37:y:2020:i:1:p:33-67
    DOI: 10.1111/1911-3846.12505
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    4. Hennig, Jan C. & Oehmichen, Jana & Steinberg, Philip J. & Heigermoser, Judith, 2022. "Determinants of common ownership: Exploring an information-based and a competition-based perspective in a global context," Journal of Business Research, Elsevier, vol. 144(C), pages 690-702.
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