Public and Private Information: Firm Disclosure, SEC Letters, and the JOBS Act

70 Pages Posted: 29 Dec 2016 Last revised: 17 Jun 2017

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Sudip Gupta

Fordham University - Finance Area

Ryan D. Israelsen

Michigan State University - Department of Finance

Date Written: May 15, 2017

Abstract

This paper examines the impact of the recently passed JOBS Act on the behavior of market participants. Using the JOBS Act - which relaxed mandatory information disclosure requirements - as a natural experiment on firms' choices of the optimal mix of hard, accounting information and textual disclosures, we find that relative to a peer group of firms, IPO firms reduce accounting disclosures and change textual disclosures. Because it allows a partial revelation of IPO quality, only textual disclosures affect underpricing. We also find that the SEC changes its behavior post-JOBS Act in responding to draft registration statements. Specifically, the SEC's comment letters to firms are more negative in tone, and more forceful in their recommendations, focusing on quantitative information. Finally, under the JOBS Act, investors place more emphasis on the information produced by the SEC when pricing the stock. Returns following public release of the letters vary by about 4% based on letter tone.

Keywords: Mandatory Disclosure, Voluntary Disclosure, SEC, Comment Letters, Information Asymmetry, IPO, JOBS Act, Underpricing, Textual Analysis, Topic Models, Public Information, Private Information, Hard Information, Soft Information

JEL Classification: D80, D83, G14, G38, M41, M48, G32

Suggested Citation

Agarwal, Sumit and Gupta, Sudip and Israelsen, Ryan D., Public and Private Information: Firm Disclosure, SEC Letters, and the JOBS Act (May 15, 2017). Georgetown McDonough School of Business Research Paper No. 2891089; Kelley School of Business Research Paper No. 17-4; Gabelli School of Business, Fordham University Research Paper No. 2891089. Available at SSRN: https://ssrn.com/abstract=2891089 or http://dx.doi.org/10.2139/ssrn.2891089

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Sudip Gupta

Fordham University - Finance Area ( email )

33 West 60th Street
New York, NY 10023
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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