Being “Invisible” by Being Transparent

54 Pages Posted: 16 Aug 2021

See all articles by Xinlu Wang

Xinlu Wang

School of Management, Jinan University

Liang Xu

SKEMA Business School

Xinyan Yan

University of Dayton

Haoyi Yang

Nanjing University

Date Written: August 12, 2021

Abstract

We study the effects of SEC oversight, proxied by a firm’s geographic proximity to the nearest SEC regional office, on the firm’s management earnings forecasts. Using exogenous changes in proximity caused by SEC district office elevations to regional status, we find that firms located in closer proximity to SEC regional offices issue management earnings forecasts more frequently. We also show that this relationship strengthens when peer firms experience SEC investigations and are more strictly obligated to clarify previous misleading information. Our results suggest that firms use voluntary disclosures to mitigate SEC oversight. We show further that firms are likely to gain credibility by disclosing more pessimistic forecasts and releasing bad news more frequently and in a timelier way. Investors (analysts) are more likely to adjust their investments (forecasts) according to management earnings forecasts issued by firms that are located near SEC offices. As a result, the SEC is less likely to issue comment letters to nearby firms that issue management earnings forecasts more often.

Keywords: proximity to SEC, SEC oversight, credibility, management earnings forecasts

JEL Classification: G14, G38, M41, M48

Suggested Citation

Wang, Xinlu and Xu, Liang and Yan, Xinyan and Yang, Haoyi, Being “Invisible” by Being Transparent (August 12, 2021). Available at SSRN: https://ssrn.com/abstract=3904070 or http://dx.doi.org/10.2139/ssrn.3904070

Xinlu Wang

School of Management, Jinan University ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

Liang Xu

SKEMA Business School ( email )

Lille
France

Xinyan Yan

University of Dayton ( email )

300 College Park
Dayton, OH 45469
United States

Haoyi Yang (Contact Author)

Nanjing University ( email )

Nanjing, Jiangsu 210093
China

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