The Impact Of Sec Comment Letter Releases

In June 2004, the SEC made a policy decision to publicly release comment letter correspondence following its filing reviews. Comment letter correspondence represents a dialogue between the SEC staff and public companies' managers regarding their disclosure decisions. The release of comment letter correspondence could provide investors with greater context and detail underlying firms' financial reports. Leading up to the policy, there was an increase in the number of Freedom of Information Act ("FOIA") requests for comment letter correspondence, which suggests that it was perceived to have informational value. However, there is limited empirical evidence on whether investors respond to its release. I specifically examine whether comment letter releases (1) provide investors with incremental information beyond companies' existing financial reports and (2) influence information asymmetry among investors. I do not find strong evidence of investor responses absent a concurrent filing, and I find mixed evidence on whether information asymmetry increases immediately following comment letter releases. Further, the increases in information asymmetry are exacerbated for releases with a high level of comment letter attention by sophisticated investors. Overall, these results suggest that comment letter releases are not informative to investors in the absence of a concurrent or future information release and that information asymmetry is mitigated by non-sophisticated investor attention to the releases.