Friends in High Places: Political Ties and SEC Oversight of Foreign Firms

In this paper, we examine the effect of country-level political relationships on SEC oversight of US-listed foreign firms, ranging from routine review of issuer filings to enforcement actions. We find that the political relationship between a foreign firm’s home country and the US is an important determinant of the frequency and intensity of SEC comment letters as well as whether the firm is likely to face enforcement. When the firm’s home country has stronger political ties with the US, the frequency of comment letters issued by the SEC is lower, the tone of comment letters is less negative and litigious and the firm is less likely to be the subject of an SEC enforcement action. We further examine the extent to which SEC routine monitoring through comment letters complements its enforcement activity, and we find that, although the relationship is generally complementary, when the political ties with the US are stronger, the complementary effect is mitigated.