Information Revelation Through Regulatory Process: Interactions Between the SEC and Companies Ahead of the IPO

68 Pages Posted: 2 Jul 2016 Last revised: 13 Jun 2019

See all articles by Michelle Lowry

Michelle Lowry

Drexel University

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Ekaterina Volkova

University of Melbourne - Faculty of Business and Economics

Date Written: May 9, 2019

Abstract

The regulator plays an active role in the IPO process via its pre-IPO communications with firms, writing 3.8 comment letters per company. To evaluate the regulator’s input, we analyze these communications between the SEC and firms using LDA-analysis and KL-divergence. Main topics of SEC concerns map closely into the regulator’s stated mandate: companies increase prospectus disclosures within precise topics of SEC concern. Questions related to revenue recognition are most informative about company valuation. These concerns are not independently uncovered by investors. This dynamic process of information disclosure results in increased transparency, but at a cost of delays in going public.

Keywords: Regulation, IPO, Disclosure

JEL Classification: G30, G24, G28

Suggested Citation

Lowry, Michelle B. and Michaely, Roni and Volkova, Ekaterina, Information Revelation Through Regulatory Process: Interactions Between the SEC and Companies Ahead of the IPO (May 9, 2019). Fifth Annual Conference on Financial Market Regulation. Available at SSRN: https://ssrn.com/abstract=2802599 or http://dx.doi.org/10.2139/ssrn.2802599

Michelle B. Lowry (Contact Author)

Drexel University ( email )

Philadelphia, PA 19104
United States
215-895-6070 (Phone)

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Ekaterina Volkova

University of Melbourne - Faculty of Business and Economics ( email )

Victoria, 3010
Australia

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