The Oversight Role of Regulators
DescriptionThis project intends to investigate how regulator’s oversight affects company’s information environment. I intend to provide evidence on the oversight role of the United States Securities and Exchange Commission (SEC) by looking at the effects of comment letters issued by the SEC in the process through which companies initially become public. The SEC exert their oversight role by issuing comment letters to the companies which they think need further improvement or clarifications. SEC comment letters (CLs) indicate the communication between SEC staff and registrants in the review process of required filings. The SEC provides filers with comments on their filings where they think that the filing could be further clarified or improved. The SEC’s objective is to make sure investors are provided with material information in order to make informed decisions – both when a company initially goes public and on a regular basis as it continues to release information to the general market. Therefore, the SEC is commenting on both quality and compliance of the disclosures. To sum up, SEC comment letters are intended to reduce information asymmetry and to make sure that firms do not hype their stocks.In the IPO setting, information asymmetry is very high because the IPO firms are fairly new. Additionally, the issuers tend to draw a too rosy picture of their stocks to get more proceeds when issuing IPOs. Given that information asymmetry and management hyping incentives are much greater in the IPO setting, it is advantageous to look at the role of SEC comment letters through looking at the IPO setting. I intend to examine whether SEC comment letters help to decrease information asymmetry and prevent the issuers from hyping their stocks. In order to test this, I intend to look at the revisions of offering price and proceeds after companies receive SEC comment letters in their IPO process. If issuers revise their offering price and proceeds upward more after the issuance of the SEC comment letters compared with before the issuance of the SEC comment letters, it is consistent with the assumption that the SEC helps to decrease information asymmetry. Comparatively, if issuers revise their offering price and proceeds downward more after the issuance of the SEC comment letters compared with before the issuance of the SEC comment letters, it indicates that the SEC exert their monitoring role by preventing the managers from hyping their stocks.
|Effective start/end date||1/01/14 → 7/02/18|