David A. Katz is a partner and Laura A. McIntosh is a consulting attorney at Wachtell, Lipton, Rosen & Katz. The following post is based on an article by Mr. Katz and Ms. McIntosh that first appeared in the New York Law Journal. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here); The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.
The nation’s capital is center stage for the latest round of debates as to the impact of shareholder activism on American business. With the introduction of the Brokaw Act by four Democratic senators in March, followed by the announcement in May of a new D.C.-based lobbying organization formed by a bipartisan group of prominent activists, the long-running controversy over the unprecedented influence of shareholder activism has officially reached Washington. The activist agenda now includes public policy, and it appears that the influence of these powerful investors is to be wielded on K Street as it has been on Wall Street. By raising their own profile via a Washington-based lobbying entity, activists will place themselves and their business practices squarely in the spotlight. Perhaps a more significant public presence will engender a more favorable reputation for activists, or perhaps it will increase activist accountability to lawmakers and public shareholders; or, perhaps, it will do both.
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An Examination of Changes in Earnings Management after Receiving SEC Comment Letters
More from: Bret Johnson, Lauren Cunningham, Ling Lei Lisic, Scott Johnson
Scott Johnson is Assistant Professor of Accounting at Virginia Tech. This post is based on an discussion paper authored by Professor Johnson; Lauren Cunningham, Assistant Professor of Accounting at the University of Tennessee; Bret Johnson, Assistant Professor of Accounting at George Mason University; and Ling Lei Lisic, Associate Professor of Accounting at George Mason University.
The Securities and Exchange Commission (SEC) has long been concerned that earnings management practices result in adverse consequences for investors, including masking the true nature of economic transactions, and has often called for increased regulatory oversight of the financial reporting process. In our paper, The Switch Up: An Examination of Changes in Earnings Management after Receiving SEC Comment Letters, which was recently made publicly available on SSRN, we examine the influence of firm-specific regulatory oversight, in the form of SEC comment letters, on firms’ earnings management practices.
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