Do the Burdens to Being Public Affect the Investment and Innovation of Newly Public Firms?

Abstract

We examine how the regulatory burdens affect the investment and innovation of newly public firms. To do so, we exploit the Jumpstart our Business Start-up (JOBS) Act, which eliminates certain disclosure, auditing, and governance requirements for a subset of newly public firms. Firms treated with these reduced burdens invest more and more efficiently after going public relative to untreated firms. These findings are concentrated in innovative investments, are accompanied by treated firms being less prone to cater to short-term earnings benchmarks, and are non-existent in dual class firms. We conclude that one reason the burdens to being public affect investment and innovation is because they divert resources away from long-run value increasing investments.

Keywords: JOBS Act, Investment, IPO, Disclosure, Sarbanes-Oxley

JEL Classification: G31, G38, M48, M41