INTERAGENCY DISCLOSURE USE IN GOVERNMENT ENFORCEMENT

I examine how government agencies use other agencies’ public disclosures in their enforcement decisions, which I refer to as interagency disclosure use. I assess the role of interagency disclosure use in two settings. First, I find that after the EPA makes its enforcement data publicly available, the SEC is more likely to investigate firms with EPA enforcement actions, consistent with the SEC using EPA disclosures to select firms to investigate. However, I find that EPA disclosures have no substantive effect on SEC investigation outcomes or duration. Second, using a novel measure of IRS audits from a generative AI model, I find that after an SEC-mandated disclosure on tax uncertainty, the IRS is more likely to audit firms that disclose tax uncertainty than those that do not. I further find evidence suggesting that SEC-mandated tax disclosures causally affect IRS audits using plausibly exogenous variation in firms’ fiscal year ends. Finally, I find that the tax disclosures have no significant effect on audit settlements but increase audit duration. Overall, the results suggest that government agencies use interagency disclosures to select firms to investigate, shedding light on an important input to the regulatory enforcement process.