Partisan bias in securities enforcement

In this article, I present a partisan theory of agency enforcement and empirically investigate the possibility of partisan bias in the enforcement of the federal securities laws. Leveraging plausibly exogenous shocks to partisan control of the U.S. Securities and Exchange Commission (SEC), I find evidence that a firm's partisan alignment with the SEC substantially reduces the likelihood of enforcement. For a firm that is ex ante equally likely to be targeted for enforcement or not, my estimates indicate that a typical increase in partisan alignment following a change in party control of the SEC reduces the likelihood of enforcement by over 19%. Partisan alignment also appears to reduce aggregate monetary sanctions, though these estimates are less certain. By contrast, I find little evidence of partisan bias in the initial opening of investigations. These findings suggest there may be meaningful partisan bias in SEC enforcement and have important implications for democratic governance. (JEL D73, K22, K23, K41, K42, P00)