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

67 Pages Posted: 2 Jul 2016 Last revised: 26 Sep 2019

See all articles by Michelle Lowry

Michelle Lowry

Drexel University; European Corporate Governance Institute (ECGI)

Roni Michaely

The University of Hong Kong; ECGI

Ekaterina Volkova

University of Melbourne - Faculty of Business and Economics

Date Written: September 13, 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 (September 13, 2019). Fifth Annual Conference on Financial Market Regulation, Swiss Finance Institute Research Paper No. 19-47, Forthcoming in Review of Financial Studies, 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 )

3141 Chestnut St
Philadelphia, PA 19104
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Roni Michaely

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Ekaterina Volkova

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

Victoria, 3010
Australia

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