Determinants and Consequences of SEC Comment Letters: A Review*

Abstract

This paper comprehensively reviews the determinants and consequences of SEC comment letters and provides an up-to-date synthesis of the research in this area. The review identifies the accounting standards, firm characteristics, and management attributes that influence the likelihood of receiving a comment letter and highlights significant gaps in the literature. The study reveals that SEC comment letters can lead to improved financial reporting and disclosure quality by reducing information asymmetry and enhancing stakeholders' decision-making. However, the review also identifies some unintended consequences, including increased insider trading and audit fees. The findings have significant implications for various stakeholders. Regulators can use the insights to conduct more effective and efficient reviews, while practitioners can develop best practices to navigate the SEC comment letter process. The paper identifies future research areas and emphasizes the importance of developing precise measurement instruments to better understand the effects of different types of SEC reviews.