Wearing Out the Watchdog: SEC Case Backlog and Investigation Likelihood

Abstract

In the wake of corporate scandals, the SEC often provides a defense of being overworked. We examine this assertion using a novel comprehensive data set of closed investigations by SEC office. We show that high office case backlog materially decreases the likelihood that a new investigation is opened after several common investigation trigger events, and we find this association extends to cases with large shareholder implications. Further, we show that when office backlog is high the SEC is less like to open cases that are costlier to investigate (e.g., complex restatements, larger firms, less familiarity).