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Proximity to the SEC and Stock Price Crash Risk
Author(s) -
Kubick Thomas R.,
Lockhart G. Brandon
Publication year - 2016
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12122
Subject(s) - crash , stock price , commission , business , stock (firearms) , stock exchange , monetary economics , accounting , economics , finance , mechanical engineering , paleontology , series (stratigraphy) , computer science , engineering , biology , programming language
We explore the possibility that Securities Exchange Commission (SEC) oversight influences disclosure practices in a manner that reduces the likelihood of individual stock price crashes. Firms located farther from the SEC have greater stock price crash risk and this result is more pronounced for firms with financial statements that are less readable (those with larger 10‐K filings) and more pronounced when SEC budgets are relatively smaller. Similar results are obtained in response to SEC regional office location changes that are more likely to be exogenous. Our results suggest that SEC oversight induces disclosure practices that reduce the likelihood of large negative disclosures.