 Assessing the objective function of the SEC against financial misconduct: A structural approachChuan Chen, Yanrong Jia, Xiumin Martin and Bernardo Silveira Journal of Accounting and Economics, 2025, vol. 80, issue 1 Abstract: We examine the objective function of the SEC against financial misconduct by estimating a structural model of the interactions between the SEC and a regulated firm. The SEC considers social costs, enforcement costs, and firms' compliance costs when making enforcement decisions. Identification exploits SOX as a shock to enforcement intensity. Four insights emerge from counterfactual analyses. First, marginal social costs have a greater impact on the SEC's perceived welfare than marginal enforcement costs. Second, the SEC's current enforcement mitigates earnings management to a level close to the first-best scenario. Third, a “hawkish” regulator, who perceives high social costs of financial misconduct, would impose excessive costs on society. Lastly, removing regulatory discretion would result in higher penalties and lower welfare, with little effect on earnings management. Keywords: Financial misconduct; SEC; Enforcement; Regulator discretion; Regulator preferences; Social costs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:80:y:2025:i:1:s0165410125000308 DOI: 10.1016/j.jacceco.2025.101794 Access Statistics for this article Journal of Accounting and Economics is currently edited by J. L. Zimmerman, S. P. Kothari, T. Z. Lys and R. L. Watts More articles in Journal of Accounting and Economics from Elsevier |
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