Ongoing SEC Disclosures by Foreign Firms

Abstract

We study how home-market reporting requirements and listing choices associate with ongoing SEC disclosures by foreign firms and the investor response. The SEC defers material event and interim financial disclosure obligations to foreign firms' home market regulator or exchange. We find a growing number of foreign firms incorporate in disclosure havens and have little or no event-driven disclosure obligations. These firms furnish fewer 6-K disclosures but experience greater investor interest and market response to each filing. There is little evidence that the SEC substitutes for lower information flow with additional monitoring. Our results indicate that the SEC's one-size-fits-all approach to foreign firm disclosure has led to increasing disparity in information flow, despite the strong demand for and reaction to disclosures by firms from weaker regimes.

The SEC Filing Review Process: A Survey and Future Research Opportunities*

“…Studies examining the probability of receiving specific types of comment letters expand their models based on their particular research setting, such as auditor turnover disclosures in 8‐K filings (Ettredge et al 2011), compensation disclosures in proxy statements (Robinson et al 2011), IPO or merger registration statements (Agarwal et al 2017; Johnson et al 2020; Liu et al 2020; Schuldt and Vega 2018; Wang 2018), non‐GAAP reporting (Donelson et al 2020; Jo and Yang 2020), filings from foreign companies (Boone et al 2021; Gietzmann and Isidro 2013; Linthicum et al 2017; Naughton et al 2018), and other specific disclosures or accounting applications 16 . Prior literature finds evidence of spillover in types of comments across auditors (Baugh and Schmardebeck 2020; Bills et al 2020) and industry peers (Brown et al 2018).…”

“…Furthermore, in settings where the SEC is focused on nonfinancial disclosures, the probability of issuing an accounting‐related comment is lower, largely due to a lawyer, rather than an accountant, being assigned to the filing review team (Hills et al 2020). Finally, Boone et al (2021) find that the SEC is more likely to issue comments on a foreign company's annual report or 6‐K filing when the foreign company provides more 6‐K disclosures, as opposed to issuing comments to foreign companies that may be inadequately disclosing material events in Form 6‐K in a timely manner.…”