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Incentivizing Financial Regulators

Author

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  • Joseph Kalmenovitz

Abstract

I study how promotion incentives within the public sector affect financial regulation. I assemble individual data for all SEC enforcement attorneys between 2002 and 2017, including enforcement cases, salaries, and ranks. Consistent with tournament model, attorneys with stronger promotion incentives are involved in more enforcement, especially against severe misconduct, and in tougher settlement terms. For identification, I rely on cross-sectional tests within offices and ranks and on exogenous variation in salaries resulting from a conversion to a new pay system. The findings highlight a novel link between incentives and regulation and show that the regulator’s organizational design affects securities markets.

Suggested Citation

  • Joseph Kalmenovitz, 2021. "Incentivizing Financial Regulators," The Review of Financial Studies, Society for Financial Studies, vol. 34(10), pages 4745-4784.
    • Handle: RePEc:oup:rfinst:v:34:y:2021:i:10:p:4745-4784.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa138
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    Citations

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    Cited by:

    1. Holzman, Eric R. & Marshall, Nathan T. & Schmidt, Brent A., 2024. "When are firms on the hot seat? An analysis of SEC investigation preferences," Journal of Accounting and Economics, Elsevier, vol. 77(1).
    2. El Ghoul, Sadok & Guedhami, Omrane & Wei, Zuobao & Zhu, Yicheng, 2023. "Does public corruption affect analyst forecast quality?," Journal of Banking & Finance, Elsevier, vol. 154(C).
    3. Sirio Aramonte & Frank Packer, 2022. "Information governance in sustainable finance," BIS Papers, Bank for International Settlements, number 132, October –.
    4. Donelson, Dain C. & Kubic, Matthew & Toynbee, Sara, 2024. "The SEC's September spike: Regulatory inconsistency within the fiscal year," Journal of Accounting and Economics, Elsevier, vol. 77(2).
    5. Cheng, Junguo & Wang, Lei & He, Jing, 2023. "Political promotion incentives and banking supervision: Evidence from a quasi-natural experiment in China," Journal of Banking & Finance, Elsevier, vol. 156(C).
    6. Laure Batz, 2023. "Financial market enforcement in France," European Journal of Law and Economics, Springer, vol. 55(3), pages 409-468, June.

    More about this item

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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