Politically Connected Companies Are Significantly More Likely to Receive SEC Comment Letters


According to a new study politically connected companies “are significantly more likely” to receive SEC comment letters. 

In the study, “Is the SEC Captured? Evidence from Comment-Letter Reviews,” the authors define politically connected companies as “firms that have either lobbied the SEC directly or are top contributors to legislators serving on SEC oversight committees.”

Previous theories have have hypothesized that a company’s political ties make enforcement actions against the company less likely and make penalties lighter.

Why does the SEC’s corporate finance unit tend to scrutinize politically connected companies more than it does unconnected firms? The authors think the most likely answer doesn’t require  “an anti-political vendetta” on the part of the regulators.

Instead, political connectedness may simply be a practical way for regulators to unearth issues that they want to review before issuing comment letters, the researchers suggest. The author’s tests suggest that the SEC’s corporate finance division may see a company’s political connectedness “as a distinct risk indicator,” according the paper.

Learn more in this Post on CFO.com

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