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Ms. Yanrong Jia
Ph.D. Candidate in Accounting
Olin Business School
Washington University in St. Louis

The Securities and Exchange Commission (SEC), constrained by limited resources, is compelled to select enforcement actions to limit enforcement costs. In this paper, I examine whether the efficiency of federal district courts affects the likelihood of the SEC initiating an enforcement action (i.e., civil actions). I proxy for court efficiency using the number of days between the case’s filing and termination, the proportion of months with vacant judges, the case backlog per judge, and a composite score of all three court efficiency measures using the principal factor analysis. I find a significantly negative relation between the court efficiency measures and the SEC enforcement likelihood. Further, I use judicial vacancy as an exogenous shock to court efficiency and find that judicial vacancy has a stronger effect on the SEC enforcement likelihood in courts with fewer judgeships or more productive outgoing judges. Lastly, I find that the efficiency of federal district courts is associated with restatement likelihood because of firms’ perceived costs of SEC enforcement. The results provide evidence that the federal judicial system is an important factor for the SEC enforcement likelihood and the capital market.