Politician Careers and SEC enforcement against financial misconduct

Mehta, Mihir N.; Zhao, Wanli

doi:10.1016/j.jacceco.2020.101302

Cited by 58 publications

(15 citation statements)

References 59 publications

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“…Fulmer et al (2017) find that executives who make political campaign contributions generally receive more lenient treatment from both the SEC and the DoJ, including a better chance of settling out of court, smaller fines, and less time in prison or on probation. Finally, Mehta and Zhao (2020) find that firms located in the constituency of an SEC‐influential politician are less likely to face an SEC enforcement action 4…”

Section: Prior Research and Hypothesesmentioning

confidence: 99%

“…As discussed above, extant literature provides two competing views of how firms' political connections influence the SEC's oversight of their financial reporting. On the one hand, studies examining SEC enforcement actions (e.g., Yu and Yu 2011; Correia 2014; Fulmer et al 2017; Mehta and Zhao 2020) show that firms connected with SEC‐influential politicians receive preferential enforcement by the SEC in terms of fewer enforcement actions and less severe penalties. Thus, these connected firms might perceive lower political costs, such that if they report more opportunistically they might expect to “get away with it” to a certain extent in terms of less enforcement because of the influence of their connections.…”

Section: Prior Research and Hypothesesmentioning

confidence: 99%

“…On the other hand, Heese et al (2017) find that firms' connections with SEC‐influential politicians attract heightened scrutiny by the SEC staff in reviewing and monitoring their financial reports, and Mehta and Zhao (2020) find that firms experiencing an SEC investigation prior to an election run the risk of losing an important political connection. The political costs of these effects, heightened scrutiny or fear of losing an important political connection, imply that an increase in such political connections might lead firms to report less opportunistically.…”

Section: Prior Research and Hypothesesmentioning

confidence: 99%

“…4 4 Mehta and Zhao (2020) also report that SEC‐influential politicians are less likely to be re‐elected if a constituent firm has an SEC enforcement action during the period leading up to the election, and that enforcement actions are opportunistically timed around those politicians' elections. …”

mentioning

confidence: 99%

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Do Political Connections Induce More or Less Opportunistic Financial Reporting? Evidence from Close Elections Involving SEC‐Influential Politicians*

Jennings

Kartapanis²,

2021

Contemporary Accting Res

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This study explores close US congressional elections involving politicians who have influence over the SEC to examine the effect of firms' political connections on their financial reporting. This question is important in understanding the overall effect of political connections on financial reporting. Our difference‐in‐differences tests reveal no evidence that firms experiencing a relative increase in political connections report more opportunistically after close elections in anticipation of preferential treatment by the SEC in its enforcement actions. In contrast, we find evidence that these firms report less opportunistically in response to an increase in their connections with SEC‐influential politicians. Further tests show that our findings are unlikely to be driven by capital market pressure, managerial equity incentives, or corporate governance. Overall, our results are consistent with political connections mitigating opportunistic reporting through enhanced scrutiny by the SEC of politically connected firms' financial reporting. Our findings provide new insights into the interactions among political connections, SEC oversight, and financial reporting by showing how politically connected firms alter their financial reporting in anticipation of differential treatment by the SEC.

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Section: Prior Research and Hypothesesmentioning

confidence: 99%

Section: Prior Research and Hypothesesmentioning

confidence: 99%

Section: Prior Research and Hypothesesmentioning

confidence: 99%

mentioning

confidence: 99%

See 2 more Smart Citations

Do Political Connections Induce More or Less Opportunistic Financial Reporting? Evidence from Close Elections Involving SEC‐Influential Politicians*

Jennings

Kartapanis²,

2021

Contemporary Accting Res

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“…Companies in the regions of SEC-relevant politicians are less likely to be AAER targets relative to other company (Mehta and Zhao, 2020). Further, large employers in politically important states are less likely to be targeted during presidential elections (Heese, 2018).…”

Section: Politics and Regulationmentioning

confidence: 99%

SEC enforcement targets: a Christian virtue ethics perspective

Demaline

2020

JFC

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Purpose The purpose of this paper is to provide a summary and synthesis of US Securities and Exchange Commission accounting and auditing enforcement release (AAER)-based research on financial misreporting firms and the firms’ management. Christian virtue ethics (CVE) is used as a framework for this review. Suggestions for future research are presented. Design/methodology/approach This is a review of the academic literature covering AAERs. The findings are viewed through the lens of CVE. Findings Several financial misconduct studies use samples developed from AAER targets. These studies commonly focus on specific characteristics of AAER targets. This paper presents and analyzes characteristics of AAER targets and considers how CVE may mitigate fraudulent reporting. Research limitations/implications The main limitation of the research is that the literature review is confined to studies of financial fraud that use an AAER-based sample. Nevertheless, the sample is sufficient to provide insight into the common characteristics of AAER target firms and related entities. The benefits of CVE are considered. This study has relevant implications for investors, regulators and researchers concerned with financial reporting quality, fraud, regulatory oversight and business ethics. Originality/value This paper provides a set of AAER target features and considers how CVE may mitigate financial fraud. Financial regulators, accounting standards setters and researchers may be interested in the findings presented in this study.

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How to Deter Financial Misconduct if Crime Pays?

et al. 2021

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Financial misconduct has come into the spotlight in recent years, causing market regulators to increase the reach and severity of interventions. We show that at times the economic benefits of illicit financial activity outweigh the costs of litigation. We illustrate our argument with data from the US Securities and Exchanges Commission and a case of investment misconduct. From the neoclassical economic paradigm, which follows utilitarian thinking, it is rational to engage in misconduct. Still, the majority of professionals refrain from misconduct, foregoing economic rewards. We suggest financial activity could be reimagined taking into account intrinsic and prosocial motivations. A virtue ethics framework could also be applied, linking financial behavior to the quest for moral excellence and shared flourishing. By going beyond utilitarian thinking and considering alternative models, we offer a fuller account of financial behavior and a better perspective from which to design deterrence methods.

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Politician Careers and SEC enforcement against financial misconduct

Cited by 58 publications

References 59 publications

Do Political Connections Induce More or Less Opportunistic Financial Reporting? Evidence from Close Elections Involving SEC‐Influential Politicians*

Do Political Connections Induce More or Less Opportunistic Financial Reporting? Evidence from Close Elections Involving SEC‐Influential Politicians*

SEC enforcement targets: a Christian virtue ethics perspective

How to Deter Financial Misconduct if Crime Pays?

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