The effect of enforcement transparency: Evidence from SEC comment-letter reviews

Duro, Miguel; Heese, Jonas; Ormazábal, Gaizka

doi:10.1007/s11142-019-09503-1

Cited by 86 publications

(28 citation statements)

References 55 publications

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“…Further, Goldstein and Sapra (2013) provide evidence that the receipt of a comment letter causes market participants to impose "market discipline". Therefore, managers attempt to find ways to improve their reputation and image (Guay et al, 2016) or to reduce market discipline (Duro et al, 2018). Under this situation, they have stronger incentives to revive the lost trust and to provide positive signals thought decreasing their opportunistic behavior.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Does Securities Commission Oversight Reduce the Complexity of Financial Reporting?

Hesarzadeh

Rajabalizadeh

2020

RC-SAR

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En este trabajo se investiga si la supervisión de la Comisión de Valores reduce la complejidad de los informes financieros. Para ello se utilizan las cartas de opinión (comment letters) de la Comisión de Valores de Irán. Además, para medir dicha complejidad, se emplea el índice de Fog. Usando un diseño de diferencia en diferencias con la aproximación propensity score matching, se encuentra que la supervisión de la Comisión de Valores reduce esta complejidad. Además, se muestra que el impacto de la supervisión de las comisiones de valores en la complejidad de los informes financieros es mayor para las empresas con mayor calidad de gobierno corporativo. También se documenta que este impacto (1) no se limita a un año y persiste al menos dos años después, y (2) no es mayor para las empresas que reciben más cartas de opinión (comment letters). Además, se constata el efecto indirecto de la supervisión de la comisión de valores, en el sentido de que las empresas que no reciben ninguna carta de opinión (comment letters) reducen la complejidad de sus informes financieros si la comisión de valores ha hecho comentarios sobre la empresa líder del sector o sobre un competidor cercano. En definitiva, este artículo proporciona, por un lado, evidencia relacionada con el debate internacional sobre si las comisiones de valores podrían tener efectos beneficiosos en la información financiera que elaboran las empresas y, por otro, contribuye a la literatura sobre la complejidad de los informes financieros y los factores que reducen la misma, lo cual ocupa un lugar destacado entre los temas más importantes en el contexto de la información financiera internacional. We investigate whether securities commission oversight reduces the complexity of financial reporting (complexity). To measure the securities commission oversight, we use comment letters from securities commission of Iran. Further, to measure the complexity, we employ the Fog index. Using a difference-in-differences design with a propensity score matching approach, we find that the securities commission oversight reduces the complexity. Furthermore, we document that the impact of securities commission oversight on the complexity is stronger for firms with higher corporate governance quality. In addition, we document that the impact of securities commission oversight on the complexity (1) is not limited to one year and persists through at least two years later; and (2) is not higher for firms that receive more comment letters. We further document the spillover effect of securities commission oversight, in the sense that firms not receiving any comment letter reduce their complexity if the securities commission has commented on the industry leader or a close rival. Collectively, this paper, on the one hand, provides related evidence for the international debate on whether securities commissions could provide beneficial effects; and on the other hand, contributes to the literature on the complexity and its reducing factors that are among the most important issues in the context of international financial reporting.

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Section: Hypothesis Developmentmentioning

confidence: 99%

Does Securities Commission Oversight Reduce the Complexity of Financial Reporting?

Hesarzadeh

Rajabalizadeh

2020

RC-SAR

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“…Securities commissions have designed the regulatory review process to protect investors (Duro et al, 2018). They periodically review financial statement filings to ensure compliance with disclosure requirements, and if a filing is deemed to be deficient in some way or if the securities commissions desire further information, they issue CLs to companies to require changes to publicly reported information or request additional information (Bills et al, 2019).…”

Section: Regulatory Comment Lettersmentioning

confidence: 99%

“…Research on the determinates of receiving a CL (e.g., Robinson et al, 2011;Cassell et al, 2013;Johnston & Petacchi, 2017;Ballestero & Schmidt, 2019;Hesarzadeh and Rajabalizadeh, 2020) provides evid-ence that CL receipt is more likely for companies that are large, older, more volatile, unprofitable, complex, engage smaller auditors, have recent IPO, or have weak corporate governance, managerial ability, and financial reporting. Furthermore, research on the consequences of receiving a CL (e.g., Gietzmann & Pettinicchio, 2014;Bozanic et al, 2017;Johnston & Petacchi, 2017;Brown et al, 2018;Duro et al, 2018;Cassell et al, 2019;Yao & Xue, 2019;Cunningham et al, 2020) suggests that, in general, a CL improves information environment, in the form of higher earnings response coefficients, quality of disclosures, and forecast accuracy; and lower internal control opinion shopping, earnings management, abnormal trading volume, return volatility, bidask spread and future stock price crash risk.…”

Section: Regulatory Comment Lettersmentioning

confidence: 99%

The Impact of Corporate Social Responsibility on Regulatory Comment Letters: Evidence from Iran

Hesarzadeh

2022

Rev. contab.

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Securities commissions regularly review corporate reports, and if the review reveals a possible deficiency— such as a potential accounting error— or requires further clarifications, they send the company a comment letter (CL), including a request for providing written responses and relative additional information. Current study aims to examine whether and how corporate social responsibility (CSR) affects CLs. This empirical study is based on a sample of 437 Iranian firm year observations from 2011 to 2017. Results show that firms with more CSR are less likely to receive CL, that more CSR does not influence the association of managerial misbehavior and CLs, and that the negative association between CSR and CLs is stronger among firms facing higher environmental information asymmetry and firms having higher corporate governance quality. Collectively, this paper contributes to the literature by providing new evidence on the beneficial effect of CSR in the context of CLs. Las comisiones de valores revisan periódicamente los informes de las empresas, y si la revisión revela una posible deficiencia -como un posible error contable- o se requiere más aclaraciones, envían a la empresa una carta de comentarios (CL), que incluye una solicitud de respuesta por escrito y la relativa información adicional. El presente estudio pretende examinar si la Responsabilidad Social de las Empresas (RSE) afecta a las cartas de comentarios y cómo lo hace. Este estudio empírico se basa en una muestra de 437 observaciones anuales de empresas iraníes desde 2011 hasta 2017. Los resultados muestran que las empresas con más RSC tienen menos probabilidades de recibir CL y que más RSC no influye en la asociación entre mal comportamiento de los directivos y CL. También se pone de manifiesto que la asociación negativa entre RSC y CL es más fuerte entre las empresas que enfrentan una mayor asimetría de información ambiental y las empresas que tienen una mayor calidad de gobierno corporativo. En conjunto, este trabajo contribuye a la literatura aportando nuevas pruebas sobre el efecto beneficioso de la RSC en el contexto de las CL.

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“…Securities commissions have usually designed the regulatory review process to ensure information quality and protect investors (e.g., Duro, Heese, & Ormazabal, 2019). They periodically review several financial reports to ensure compliance with disclosure requirements.…”

Section: Regulatory Scrutinymentioning

confidence: 99%

Audit Committee and Regulatory Scrutiny

2022

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This paper examines the relationship between audit committee characteristics and regulatory scrutiny. Comment letters issued by the Securities and Exchange Organization of Iran were used to measure regulatory scrutiny. Empirical results show that audit committee financial expertise increases (decreases) regulatory scrutiny when audit committee independence is low (high). This paper informs the cost-benefit debate on audit committee financial expertise. It contributes to the literature by showing that regulatory scrutiny is jointly influenced by the audit committee independence and financial expertise. The paper is of interest to researchers and shareholders, boards of directors, and other practitioners who wish to improve the composition and quality of audit committees, especially in emerging markets where corporate governance codes are still developing.

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The effect of enforcement transparency: Evidence from SEC comment-letter reviews

Cited by 86 publications

References 55 publications

Does Securities Commission Oversight Reduce the Complexity of Financial Reporting?

Does Securities Commission Oversight Reduce the Complexity of Financial Reporting?

The Impact of Corporate Social Responsibility on Regulatory Comment Letters: Evidence from Iran

Audit Committee and Regulatory Scrutiny

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