Stock volatility reactions to violations subject to investigation by the SEC

Abstract

This study examines how specific regulatory compliance laws impact corporate security violators, causing changes in the stock volatilities of financial markets. Several volatility indices are utilised as effective benchmarks in investigating actual corporate compliance. The Securities and Exchange Commission (SEC) Administrative Proceedings (AP) are the entities that conduct investigations into securities violators who cause changes in stock volatilities. This study investigates the effectiveness of several regulatory laws, such as the Sarbanes-Oxley Act (SOX) and the Dodd-Frank Act (DFA). Their effectiveness is monitored by measuring the number of securities violations before and after the passage and enforcement of each law. It remains uncertain how effective new regulations can reduce the number of financial market security violators. Consequently, in assessing the effectiveness of the new laws, the study suggests that despite firms incorporating the new regulations, there was still an increase in the number of violations over a subsequent six-month period.