SEC Monitoring of Foreign Firms’ Disclosures

The analyses show that foreign firms are subject to less intensive SEC monitoring than comparable US firms. While this is seemingly inconsistent with SEC’s mission to protect US investors, we posit and show that SEC reduces monitoring when it can rely on the public and private enforcement institutions in the foreign firm’s home country. In the case of foreign firms with no foreign regulator to share the monitoring effort, the intensity of SEC’s monitoring is comparable to that for US firms. Further, the SEC provides increased monitoring for those foreign firms where there is likely to be higher levels of information asymmetry between the firm and US investors. In addition, we find that SEC monitoring is higher for foreign firms that have higher levels of trading by US investors, consistent with the idea that the SEC protects US investors.