What is it about?
Many SEC regulations use public float threshold to set up different regulation rules. For example, SOX Section 404 requires firms with larger public float to comply with more costly regulations. Public float is defined as the market value of non-affiliated shares. Firms decide how to define affiliates, which usually includes executive officers and directors, and blockholders. Depending on whether a firm uses 5% or 10% to define blockholders, the resulting public float could vary greatly. I show that firms use this discretion to influence which set of SEC regulations to comply with.
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Why is it important?
This paper is the first to document that public float could be managed by defining affiliates with discretion. The findings are important to understand the costs and benefits to certain SEC regulations for firms around the public float threshold.
Perspectives
Many SEC regulations use public float threshold to set up different regulation rules. For example, SOX Section 404 requires firms with larger public float to comply with more costly regulations. Public float is defined as the market value of non-affiliated shares. Firms decide how to define affiliates, which usually includes executive officers and directors, and blockholders. Depending on whether a firm uses 5% or 10% to define blockholders, the resulting public float could vary greatly. I show that firms use this discretion to influence which set of SEC regulations to comply with.
Dr Feng Gao
Rutgers Business School - Newark and New Brunswick
Read the Original
This page is a summary of: To Comply or Not to Comply: Understanding the Discretion in Reporting Public Float and SEC Regulations, Contemporary Accounting Research, September 2015, Wiley,
DOI: 10.1111/1911-3846.12170.
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