In the world of legislative decision-making, one truth holds: U.S. legislators are heavily motivated by re-election. To win votes, they must understand and serve the economic interests of their constituents. This dynamic raises an intriguing question: How do members of Congress gather the information they need to make informed policy choices, especially about the businesses in their districts? Equally interesting is the question of how firms respond to this demand for information.
In a new article, we explore these questions by analyzing whether legislators and their staff seek out corporate financial disclosures, particularly the 10-K and 10-Q reports that firms file with the Securities and Exchange Commission (SEC). These filings contain a wealth of information – from financial performance and risk assessments to forward-looking statements on regulatory impacts. But do legislators actually read them?
To provide causal evidence in response to this question, we used a quasi-natural experimental setting, congressional redistricting. For some firms, when district boundaries are redrawn – usually after a U.S. Census – their congressional representation changes. This creates an exogenous shock, introducing new firms into a legislator’s constituent base and triggering a potential need for information.
In our paper, we examined whether such redistricting led to a measurable change in information-seeking behavior. We analyzed more than a decade of searches in the SEC’s EDGAR database, focusing on downloads of 10-K and 10-Q filings from IP addresses linked to congressional district offices.
The results are striking. After redistricting, legislators significantly increase their searches for the financial statements of firms newly added to their constituency. Specifically, downloads of 10-K filings rise by nearly 15 percent, and 10-Q downloads by more than 11 percent, compared with control firms that were not affected by redistricting. This finding supports the idea that legislators use these disclosures to better understand their new local economies.
Importantly, this increase in search activity is not random or driven by other factors like investment interest. We conducted numerous robustness tests to rule out confounding influences such as personal financial incentives (by excluding firms in which legislators traded stock) and politically motivated redistricting (by analyzing states with nonpartisan redistricting processes). We also found no increase in searches from neighboring zip codes, reinforcing the conclusion that the activity was tied to district offices specifically.
What’s more, legislators appear especially interested in these disclosures when they’re preparing to vote on legislation. Using data on congressional roll call votes, we find that search activity spikes in the period leading up to a vote – particularly for more controversial bills and those that had been lobbied for by the firms in question. The implication is that legislators may be using public filings to supplement lobbying and other information sources before making decisions.
And it’s not just Congress that changes its behavior. Firms respond, too.
When firms find themselves with a new congressional representative due to redistricting, they ramp up their own communication efforts. We find that firms significantly increase the frequency of policy-related language in their 10-K and 10-Q filings after redistricting, discussing topics like taxes, healthcare, financial regulation, and trade in greater depth. This suggests that firms understand the heightened scrutiny and use their disclosures strategically to influence perception and decisions.
Additionally, firms affected by redistricting significantly boost their lobbying. This indicates a dual approach to information-sharing: public disclosures for broad messaging and private lobbying for targeted influence. Both are likely aimed at reducing information asymmetry and shaping policy outcomes favorable to the firm.
Together, these findings paint a picture of a largely cooperative, rather than adversarial, relationships between firms and legislators. While regulatory agencies like the IRS or SEC may use financial statements for enforcement, congressional representatives appear to use them to understand and advocate for their constituents.
Our study sheds light on the practical utility of corporate financial statements far beyond their traditional users like investors and analysts. It also reveals a less visible but important function of disclosure in a democratic system: helping elected officials make better-informed decisions about the policies that shape our economy.
In sum, the study offers compelling evidence that when political boundaries shift, so too does the flow of financial information. Legislators seek out corporate disclosures to guide their actions, especially when the stakes are high. And firms, in turn, adapt their communication strategies in response. In an era of growing demands for transparency and accountability, this study highlights how financial reporting plays a critical – if underappreciated – role in policymaking.
This post comes to us from professors Ethan Rouen at Harvard Business School, Laura A. Wellman at the University of Oregon, Jing Pan at Pennsylvania State University, and Matthew Ma at Rutgers, the State University of New Jersey. It is based on their recent article, “Legislators’ Demand for Firms’ Financial Statements: Evidence from U.S. Congressional Redistricting Events,” forthcoming in the Review of Accounting Studies and available here.