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Study Shows Political Influence in SEC Enforcement Actions

A new paper finds evidence that “voters’ interests drive political pressure on SEC enforcement—independent of firms’ lobbying for their special interests.” The study utilized the labor intensity of a company (a measure of the proportion of labor to capital used in a business) as a measure of the amount that the company contributes to general employment conditions. The author hypothesized that an enforcement action against a company with higher labor intensity would have negative political consequences, and thus would be the subject of outside pressure. The findings show that, controlling for accounting quality, labor-intensive firms are less likely to receive a comment letter or be the subject of an enforcement action than less labor-intensive firms. Further, the study found that the effect is even more pronounced in presidential election years, in politically important states, and in the districts of senior congressmen with SEC oversight responsibilities.