The Effect of the JOBS Act on Underwriting Spreads

25 Pages Posted: 21 Mar 2014  

Usha Rodrigues

University of Georgia Law School

Date Written: March 19, 2014

Abstract

U.S. underwriting fees, or spreads, have somewhat inexplicably clustered around 7% for years, a phenomenon that some have suggested evidences implicit collusion. The goal of Title I the JOBS Act of 2012 was to make going public easier for smaller firms; certain provisions specifically should make the underwriters’ task less risky, and thus less expensive. Presuming these provisions are effective, then one would predict that underwriting spreads would decrease as the costs to the underwriter for a public offering declined. Admittedly the prior presumption is a big one: it may be that the JOBS Act reforms were largely ineffective, and thus could be expected to have little effect on underwriter cost. This article is the first to examine post-JOBS Act underwriting spreads to determine whether spreads have in fact declined. A finding that underwriting costs stayed constant might be evidence of either collusion or that the JOBS Act was ineffective at reducing the cost of going public. I find that one provision has lowering the spread, thus suggesting elasticity in the spread and offering at least some evidence of the Act’s effectiveness.

Keywords: JOBS Act, Jumpstart our Business Startups, investment, finance, underwriting, banks, IPO, securities, SEC, Securities Act, financial statements

JEL Classification: K22

Suggested Citation

Rodrigues, Usha, The Effect of the JOBS Act on Underwriting Spreads (March 19, 2014). Kentucky Law Journal, Forthcoming; UGA Legal Studies Research Paper No. 2014-11. Available at SSRN: https://ssrn.com/abstract=2411552

Usha Rodrigues (Contact Author)

University of Georgia Law School ( email )

225 Herty Drive
Athens, GA 30602
United States
706-242-5562 (Phone)

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