Political connections and SEC enforcement

• Published in: Journal of accounting & economics Vol. 57; no. 2-3; pp. 241 - 262
• Main Author: Correia, Maria M.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.04.2014; Elsevier Sequoia S.A
• Subjects: Enforcement; Executives; Expenditure; Fines & penalties; Legal penalties; Lobbying; Lobbyists; Political connections; Political economy; Politicians; Probability; Prosecution; Public sector; Regulation; Regulatory agencies; Securities and Exchange Commission; Studies; U.S.A; United States > US; Securities and Exchange Commission; Enforcement; Political connections; Legal penalties; M41; M43; G38; Prosecution
• ISSN: 0165-4101; 1879-1980
• DOI: 10.1016/j.jacceco.2014.04.004

In this study, I examine whether firms and executives with long-term political connections through contributions and lobbying incur lower costs from the enforcement actions by the Securities and Exchange Commission (SEC). I find that politically connected firms on average are less likely to be involved in SEC enforcement actions and face lower penalties if they are prosecuted by the SEC. Contributions to politicians in a strong position to put pressure on the SEC are more effective than others at reducing the probability of enforcement and penalties imposed by an enforcement action. Moreover, the amounts paid to lobbyists with prior employment links to the SEC, and the amounts spent on lobbying the SEC directly, are more effective than other lobbying expenditures at reducing enforcement costs faced by firms. •I examine the association between political connections and enforcement costs.•Politically connected firms are less likely to face an SEC enforcement action.•They face lower penalties when prosecuted.•Targeted political expenditures are more effective at reducing enforcement costs.