The Securities and Exchange Commission ( SEC ) reviews company filings (10‐Q, 10‐K, S‐1, etc.) submitted to them. If a review identifies potential deficiencies, the SEC staff sends the company a comment letter seeking clarification, additional information, and ultimately, perhaps, revision of the filing or future filings. We examine the content, resolution, and ensuing informational consequences of SEC comment letters. The content analysis shows that nearly half of all comments involve accounting application, financial reporting, and disclosure issues. More than 17 percent of our sample cases result in immediate amended filings to resolve the issue(s) arising from the comment letters, and financial statements and/or footnotes are frequently revised. Following comment letter resolution, the adverse selection component of the bid‐ask spread declines and Earnings Response Coefficients ( ERC s) increase. Our results provide little support for the conjecture that the market interprets the receipt of a comment letter as a signal that the firm has poor reporting quality. Finally, we find no evidence that comment letter firms increase the quantity or change the type of voluntary disclosure, thereby eliminating a possible competing explanation for the improved information environment. We conclude the SEC 's oversight has beneficial informational effects.

ABSTRACT Although balanced budget rules are widely used throughout the world, there is considerable debate on whether and how they impact fiscal outcomes. Existing research shows that states with strict balanced budget rules address deficits by raising taxes and curbing expenditures. However, little is known about whether politicians can meet budget rules by shifting resources inter-temporally or by transferring revenues from funds not subject to balanced budget rules into funds that are required to meet a balanced budget. We show that, in addition to increasing taxes and cutting expenditures, states with strict balanced budget rules sell public assets and transfer resources across government funds to close the budget shortfall. Our findings suggest that current budget deficits not only influence the current-period taxpayers, but also impact future taxpayers and other funds within the government. The results complement existing research by expanding our understanding of the effects of balanced budget restrictions on politicians' fiscal actions.

ABSTRACT We examine the effect of large audit firms’ internal inspection programs, an important monitoring mechanism, on auditor effort and financial reporting quality. Internal inspections are often predictable, and engagement teams concentrate their effort on audits ultimately selected for inspections. The extra effort increases the likelihood of a favorable inspection rating. We find some evidence of improvement in financial reporting quality in the inspection year, suggesting that internal inspections are effective in deterring auditor shirking. Upon receiving a favorable rating, the engagement team reverts audit effort back to the preinspection level. However, if the rating is unfavorable, the team increases effort on future engagements of the client. This higher effort improves the client’s financial reporting quality if the internal inspection program is not deemed deficient by the PCAOB. Collectively, the results highlight the importance of an effective internal inspection program in improving financial reporting quality. JEL Classifications: M41; M42.

ABSTRACT This paper examines whether the identity of the individual audit partners provides informational value to capital market participants beyond the value provided by the identity of the audit firms. Using data from Taiwan, where firms are mandated to disclose the names of the engagement partners, we find a positive association between the partner's quality and the client firm's earnings response coefficient. We also find a positive market reaction when a firm replaces a lower quality partner with a higher quality one. Moreover, we find evidence that firms audited by higher quality partners experience smaller initial public offering (IPO) underpricing and are able to obtain better debt contract terms. Overall, these results suggest that the quality of engagement partners matters to capital market participants.