The Emerging Growth Company Status on IPO: Auditor Effort, Valuation, and Underpricing

54 Pages Posted: 22 Oct 2014 Last revised: 17 Aug 2018

See all articles by Tiffany Westfall

Tiffany Westfall

Ball State University

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy

Date Written: April 14, 2015

Abstract

The Securities Act of 1933 governs the going public process and the accompanying registration statement submissions to the Securities and Exchange Commission (SEC). The Jumpstart Our Business Start-ups (JOBS) Act of 2012 created several accommodations under the SEC securities laws for a new group of companies referred to as “emerging growth companies” (EGCs). We examine the associations between auditor effort, initial public offering (IPO) offer prices, and investors’ perceptions of the registrants’ intrinsic value (underpricing) and EGCs’ registration statements utilizing accommodations to reduce financial statement information disclosure. Our finding that auditor effort is reduced suggests that the potential for increased auditor risk for EGCs future financial statements could be higher because of issues related to financial statements not included in the registration statements. We also find a negative (positive) association between EGC filing and IPO offer prices (underpricing). Our results suggest potential unintended consequences associated with EGCs and that auditor effort might not be sufficient to reduce the possibility of future financial statement failures.

Keywords: Initial Public Offering, Information Asymmetry, Auditor Risk, Underpricing

JEL Classification: M41, M42

Suggested Citation

Westfall, Tiffany and Omer, Thomas C., The Emerging Growth Company Status on IPO: Auditor Effort, Valuation, and Underpricing (April 14, 2015). Journal of Accounting and Public Policy, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2512605 or http://dx.doi.org/10.2139/ssrn.2512605

Tiffany Westfall (Contact Author)

Ball State University ( email )

2000 W University Ave.
Muncie, IN 47306
United States

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

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