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

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