The SEC's Revolving Door: Insights from Boards of Directors

Abstract

This study aims to shed light on the determinants and consequences of the revolving door at the Securities and Exchange Commission (SEC). While revolvers may be good monitors due to their SEC experience and, thus, continuously create benefits for the economy (“schooling”), it is possible that they exploit their insights into the enforcement process and private connections to undermine enforcement (“regulatory capture”). Using a newly created dataset of revolvers who moved from the SEC to company boards, this study shows that not all revolvers are appointed for the same reasons and create the same benefits for their new employers. I demonstrate that those revolvers most closely involved in the enforcement process are associated with fewer future enforcement actions, while accounting quality does not improve. Contrarily, external revolvers seem to use their monitoring and advising duties to improve accounting quality. Data Availability: The newly created dataset is available in the Online Appendix; all other data sources are cited in the text.