Regulating by new technology: The impacts of the SEC data analytics on the SEC investigations

• Main Author: DENG, Tian
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2023
• Subjects: SEC; data analytics; fraud; enforcement; deterrence; Accounting
• Online Access: https://ink.library.smu.edu.sg/etd_coll/486; https://ink.library.smu.edu.sg/context/etd_coll/article/1485/viewcontent/GPAC_AY2018_PhD_Tian_Deng.pdf
• Institution: Singapore Management University

Despite the Securities and Exchange Commission’s (SEC) growing emphasis on data analytics in recent years, there is scant research about whether the investment in data analytics accomplishes its objective of enhancing enforcement efficiency. This study examines the effects of the SEC regional offices’ use of data analytics on their investigation outcomes. The utilization of data analytics reduces information processing costs, thereby streamlining the enforcement process as a whole. I find that the SEC’s use of data analytics is associated with a 12% increase in the SEC’s investigation success rate. Such an improvement is greater for firms whose disclosure are more machine-friendly, those with a greater level of complexity, and those located further away from the SEC regional offices. Furthermore, I find that firms are less inclined to engage in fraud after the SEC’s use of data analytics, probably due to a higher perceived detection likelihood. Additional tests suggest that the investigation time is shorter, and the detected fraud is more complex after the SEC’s use of data analytics. Collectively, the results provide evidence that the SEC’s use of data analytics increases its enforcement efficiency and deters firms’ fraud behavior.