Economic Conditions And The SECs Enforcement Process

Abstract

This study analyzes enforcement activities of the U.S. Security and Exchange Commission (SEC) in conjunction with changes in economic conditions. Neoclassical regulatory theorists argue that regulators are pro-business during periods of economic downturn. However, within the securities market and the regulated reporting environments violations tend to increase during contraction periods. Therefore, more intense enforcement activities seem appropriate during such periods. The intensity of SEC enforcement activities, subject to economic conditions, is examined based on the number of litigation releases issued by the Commission over a twenty year (1972-1991) period. The test of regulatory behavior revealed that enforcement activities are more intense during economic downturns. Thus the theory that regulators exhibit pro-business behavior during economic contraction is not supported by the results of this study.