Does the SEC’s Public Disclosure of its Oversight Actions Matter?

This paper studies the effect of the Securities and Exchange Commission (SEC)’s public disclosure of its oversight activity. To identify the effect, we exploit a major change in the SEC’s disclosure policy. In 2004, the SEC decided to make its corporate filing reviews (commonly known as “comment letters”) publicly available. Using a unique dataset of SEC comment letters issued before the policy change, we analyze the capital-market responses to firms’ quarterly earnings releases during SEC reviews. We find that these responses are significantly stronger in the subset of publicly-disclosed comment letters. Consistent with public disclosure of regulatory actions enhancing shareholder and director monitoring, we find that the effect is stronger among firms with more institutional investors and independent directors, respectively. We also find a decrease in the duration of the conversations and in the number of comments after the policy change. Collectively, our results suggest that the SEC’s public disclosure of its corporate filing reviews strengthens the effect of this oversight activity.