SEC Division of Corporation Finance Monitoring and CEO Power

Cheng, Xiaoyan; Gao, Lei; Lawrence, Janice E.; Smith, David B.

doi:10.2308/ajpt-50625

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other| February 01 2014

SEC Division of Corporation Finance Monitoring and CEO Power

Xiaoyan Cheng;

Xiaoyan Cheng

Xiaoyan Cheng is an Assistant Professor at University of Nebraska–Omaha, Lei Gao is an Assistant Professor at SUNY, Geneseo, and Janice E. Lawrence is an Associate Professor and David B. Smith is a Professor, both at University of Nebraska–Lincoln.

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Lei Gao;

Lei Gao

Xiaoyan Cheng is an Assistant Professor at University of Nebraska–Omaha, Lei Gao is an Assistant Professor at SUNY, Geneseo, and Janice E. Lawrence is an Associate Professor and David B. Smith is a Professor, both at University of Nebraska–Lincoln.

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Janice E. Lawrence;

Janice E. Lawrence

Xiaoyan Cheng is an Assistant Professor at University of Nebraska–Omaha, Lei Gao is an Assistant Professor at SUNY, Geneseo, and Janice E. Lawrence is an Associate Professor and David B. Smith is a Professor, both at University of Nebraska–Lincoln.

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David B. Smith

Xiaoyan Cheng is an Assistant Professor at University of Nebraska–Omaha, Lei Gao is an Assistant Professor at SUNY, Geneseo, and Janice E. Lawrence is an Associate Professor and David B. Smith is a Professor, both at University of Nebraska–Lincoln.

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Author & Article Information

We thank Phil Shane, Ed Swanson, Linda Ruchala, Aaron Crabtree, Emanuel Zur, and workshop participants at the University of Nebraska–Lincoln, the 8th Annual Governance Workshop, the 2011 American Accounting Association Annual Meeting, and the 2013 European Accounting Association Meeting. We also thank Burch Kealey for providing data from Direct Edgar. We are especially grateful to Jean Bedard (editor) and two anonymous referees.

Editor's note: Accepted by Jean Bédard.

Online ISSN: 1558-7991

Print ISSN: 0278-0380

2014

AUDITING: A Journal of Practice & Theory (2014) 33 (1): 29–56.

https://doi.org/10.2308/ajpt-50625

SUMMARY

Section 408 requires the Securities and Exchange Commission (SEC) to review the filings of all SEC registrants every three years. Our study investigates this SEC monitoring role and differs from past SEC research by focusing on the SEC Division of Corporation Finance (DCF) rather than the Division of Enforcement and specifically on DCF's “review and comment” monitoring role. We rely on past theoretical research in management, finance, and accounting that provides us with arguments suggesting the DCF may target companies with strong CEOs and weak monitoring. Our findings cast light on the power struggle between the board and CEO by suggesting that the CEO's influence over the board may adversely affect board oversight. In addition, our results indicate that the DCF-prompted restatements lead companies to re-evaluate their governance structure.

2014

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