Measuring firm exposure to government agencies

Daphne M. Armstrong, Stephen Glaeser and Jeffrey L. Hoopes

Journal of Accounting and Economics, 2025, vol. 79, issue 1

Abstract: We use textual analysis of mandatory accounting filings to develop firm-level, time-varying measures of exposure to individual government agencies including the Securities Exchange Commission (SEC) and Internal Revenue Service (IRS). The measures vary predictably across industries and with agency-specific events such as the Sarbanes Oxley Act at the SEC and budget cuts at the IRS. The measures positively relate to undisclosed agency investigations and financial statement downloads. Firms' total exposure across government agencies negatively relates to their profitability, consistent with exposure to government agencies imposing net costs. Consistent with a causal interpretation of these results, the positive stock market reaction to the surprise election of Donald Trump, who promised to reduce the power of government agencies, positively varies with firms' exposure to government agencies. As initial applications of our measures, we demonstrate that expanded SEC oversight increases firms' stock liquidity and reduced IRS oversight decreases firms’ effective tax rates.

Keywords: Government agencies; Disclosure; Corporate profitability; Corporate regulation; SOX; Liquidity; IRS; Tax planning (search for similar items in EconPapers)
JEL-codes: D82 D83 G18 M41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:79:y:2025:i:1:s0165410124000338

DOI: 10.1016/j.jacceco.2024.101703

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