Jonas Heese

Government Preferences and SEC Enforcement

I examine whether political influence as a response to voters’ interest in employment levels is reflected in the enforcement actions of the Securities and Exchange Commission (SEC). I find that large employers are less likely to experience SEC enforcement actions. Next, I examine whether variations in politicians’ sensitivity to employment levels result in variations in enforcement against large employers. I find that large employers are less likely to face enforcement actions during presidential elections if they are based in politically important states. Large employers also face fewer enforcement actions if they are based in high-unemployment states during elections of senators who serve on SEC oversight committees. Large employers based in high-unemployment districts enjoy lower enforcement if their congressmen serve on SEC oversight committees. The findings suggest that voters’ interests are reflected in SEC enforcement.

The Effect of Enforcement Transparency: Evidence from SEC Comment-Letter Reviews

This paper studies the effect of the public disclosure of the Securities and Exchange Commission (SEC) comment-letter reviews (CLs) on firms’ financial reporting. We exploit a major change in the SEC’s disclosure policy: in 2004, the SEC decided to make its CLs publicly available. Using a novel dataset of CLs, we analyze the capital-market responses to firms’ quarterly earnings releases following CLs conducted before and after the policy change. We find that these responses increase significantly after the policy change. These stronger responses partly occur while the review is ongoing and persist on average for two years. Corroborating these results, we also document a set of changes that firms make to their accounting reports following CLs. Our results indicate that disclosure of regulatory oversight activities can strengthen public enforcement.

The Role of Overbilling in Hospitals’ Earnings Management Decisions

Abstract This paper examines the role of overbilling in hospitals’ earnings management choices. Overbilling by hospitals is a form of revenue manipulation that involves misclassifying a patient into a diagnosis-related group that yields higher reimbursement. As overbilling allows hospitals to increase revenues without altering operations, affecting costs, or having to reverse such behavior in the future, I propose and find that overbilling reduces hospitals’ use of managing accruals or cutting discretionary expenditures. Next, I find that hospital managers prefer overbilling to managing accruals (cutting discretionary expenditures) when cutting discretionary expenditures (managing accruals) is constrained, and vice versa. Collectively, my findings suggest that overbilling is an important alternative manipulation tool in hospitals.

The Effects of Media Slant on Firm Behavior

The media can impose reputational costs on firms because of its important role as an information intermediary and its ability to negatively slant coverage. We exploit a quasi-natural experiment that holds constant the information event across firms, but varies the availability of a major news outlet in local markets. We find that firms subject to the threat of slanted coverage suppress the release of negative information before the event and release it subsequently. Our results are consistent with theory on the active role firms can play in managing their reputational capital through anticipatory actions to avoid negative media coverage.