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Discretion in SEC Enforcement
Discretion in SEC Enforcement
Discretion in SEC Enforcement
Discretion in SEC Enforcement
20Jul
Accounting and Law, Seminar Calendar

Discretion in SEC Enforcement

20 July 2022 | 8:30 a.m. — 10:00 a.m.
online seminar
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SPEAKER

Prof. Xiumin Martin
Professor of Accounting
Olin Business School
Washington University in Saint Louis

ABSTRACT

This study examines the costs and benefits of the discretion in SEC enforcement against financial misconduct from a social perspective. Exploiting SOX as a shock to the intensity of SEC enforcement in 2002, we estimate a structural model of the interactions between the SEC and the regulated firms, considering three components in the SEC’s perceived cost function: (1) the SEC’s external costs from capital markets (hereafter social costs), (2) the SEC’s enforcement costs, and (3) managers’ benefits of financial misconduct. We first validate that the marginal enforcement costs decline while the marginal social costs increase significantly post SOX. We then conduct counterfactual analyses, which yield three insights. First, the SEC’s heterogeneous preferences play an important role in explaining the cross-sectional variation in its enforcement (41%). Second, removing the regulator’s discretion in enforcement, such as requiring a homogenous penalty schedule, will result in higher frequency of financial misconduct and higher enforcement costs. Finally, the increased inefficiency due to removed discretion is particularly higher among firms with higher social costs. Overall, our study highlights the importance of the SEC’s discretion in policing the financial market.

Specialization of Middle Managers and Strategy Implementation19 July 2022
Financial Statements not Required27 July 2022
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Discretion in SEC Enforcement
About Speaker
Prof. Xiumin Martin

Professor of Accounting | Olin Business School | Washington University in Saint Louis

Discretion in SEC Enforcement
20 July 20228:30 a.m. — 10:00 a.m.
online seminar
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