AbstractsEconomics

Regulatory Oversight and Financial Reporting Incentives: Evidence from SEC Budget Allocations

by Terrence Patrick Blackburne




Institution: University of Pennsylvania
Department:
Year: 2014
Keywords: Disclosure Regulation; Enforcement; Financial Reporting Incentives; Political Economy; Accounting; Economics
Record ID: 2041822
Full text PDF: http://repository.upenn.edu/edissertations/1022


http://repository.upenn.edu/cgi/viewcontent.cgi?article=2146&context=edissertations


Abstract

This study examines the determinants and consequences of regulatory oversight of corporate disclosures. I investigate the extent to which industry-level political activity influences the intensity of regulatory oversight, and whether variation in the intensity of oversight affects managers' reporting incentives. I exploit variation in the allocation of budgetary resources between the SEC's disclosure review offices as a source of variation in the oversight of financial reporting and disclosures. I find evidence of a significant relationship between industry-level political activity and visibility and the allocation of resources to each office. I then use the amount of budgetary resources allocated to each office as a proxy for the intensity of the SEC oversight that firms in a given industry face. I provide evidence that when SEC oversight is more intense managers report lower discretionary accruals, managers are less likely to issue financial reports that will be subsequently restated, and firms' bid-ask spreads decrease. Overall, the results suggest that SEC oversight plays an important role in shaping managers' reporting and disclosure incentives.