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

50 Pages Posted: 18 Aug 2014 Last revised: 29 Dec 2016

See all articles by Sudip Gupta

Sudip Gupta

Johns Hopkins University

Ryan D. Israelsen

Michigan State University - Department of Finance

Date Written: August 29, 2014

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

Suggested Citation

Gupta, Sudip and Israelsen, Ryan D., Indirect Costs of the JOBS Act: Disclosures, Information Asymmetry, and Post-IPO Liquidity (August 29, 2014). Kelley School of Business Research Paper No. 2014-34, Available at SSRN: https://ssrn.com/abstract=2473509 or http://dx.doi.org/10.2139/ssrn.2473509

Sudip Gupta

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

Ryan D. Israelsen (Contact Author)

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

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