Business, Management and Accounting
3 years ago

SEC-sanctioned cases show larger financial misreporting than settled class actions.

Journal of Business Finance &amp Accounting
The road not taken: A comparison of Accounting and Auditing Enforcement Releases and securities class actions
Jae Hwan Ahn

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The study compared SEC cases and securities class actions to see how they detect financial misreporting. SEC cases show bigger accruals before misreporting, more financing needs, and insider trading. SEC cases also involve larger misreporting amounts and longer periods than class actions, but class actions settle for more money. The SEC can still find big misreporting cases despite limited resources. Investors choose class actions for higher settlements. Companies in SEC cases see drops in performance, analyst following, and CEO tenure after sanctions.