The Power of Words: How SEC Comment Letters to Foreign Issuers Affect the Capital Markets

In our recent paper, we find that the tone of language in Securities and Exchange Commission (SEC) comment letters after enforcement reviews has capital market implications, which are amplified or abbreviated based on the strength of a given country’s enforcement.

In the financial reporting realm, foreign firms listed on U.S. stock exchanges account for a significant percentage of market capitalization. They often attract particular scrutiny, however, because their accounting quality is weak compared with that of U.S. firms[1]. In an effort to enhance informational transparency and promote the overall compliance with U.S. reporting regulations, the SEC conducts periodic … Read more