Indirect Costs of the JOBS Act: Disclosures, Information Asymmetry, and Post-IPO Liquidity

Abstract

This paper evaluates the impact of the recently passed JOBS Act on IPO outcomes. A significant number of IPO firms use provisions of this act. For firms taking advantage of the JOBS Act, we find that, relative to a matched set of peer firms, (1) IPO underpricing increases, (2) post IPO liquidity decreases and (3) disclosure affects the probability of informed trading (PIN). These three results suggest that there is an increased degree of asymmetry of information among investors in JOBS Act firms. The easing of disclosure requirements in the JOBS Act therefore adversely impacts these firms by increasing the asymmetric information induced cost. Using a novel textual analysis technique to extract a set of disclosed risk factors from the prospectus, we examine which disclosures are associated with these costs.

Keywords: Disclosure, Information Asymmetry, IPO, JOBS Act, Liquidity, Probability of Informed Trading, Underpricing, Textual Analysis, Topic Models, SEC, Comment Letter

JEL Classification: G14, G38, D82, G32