The JOBS Act and Post-IPO Information Uncertainty: What Role Do Pre-IPO Private Communications Play?

46 Pages Posted: 2 Aug 2018 Last revised: 13 Sep 2019

See all articles by Cynthia Shunyao Jin

Cynthia Shunyao Jin

Michigan State University

Michael D. Kimbrough

University of Maryland - Robert H. Smith School of Business

Isabel Yanyan Wang

Michigan State University

Date Written: August 23, 2019

Abstract

The Jumpstart Our Business Startups (JOBS) Act creates many exemptions to reduce the cost of going public for smaller issuers that qualify as an Emerging Growth Company (EGC). One set of provisions allows analysts affiliated with EGCs’ underwriters to communicate privately with management and potential investors before the IPOs. Our study examines whether such provisions affect EGCs’ post-IPO information uncertainty. Using a sample of 853 IPOs during 2004-2016, we find that the dispersion in analysts’ initiation forecasts is significantly higher for EGCs compared to similar IPOs in the pre-JOBS period. This higher dispersion is largely driven by affiliated analysts and is associated with larger post-IPO return volatility. Further analysis suggests that larger variations in affiliated analysts’ soft skills are associated with higher forecast dispersion after the JOBS Act. Overall, our findings indicate that allowing affiliated analysts the option of pre-IPO private communications may contribute to increased information uncertainty for EGCs.

Keywords: JOBS Act, IPO, information uncertainty, analyst forecast dispersion, pre-IPO communications, post-IPO return volatility

Suggested Citation

Jin, Cynthia Shunyao and Kimbrough, Michael D. and Wang, Isabel, The JOBS Act and Post-IPO Information Uncertainty: What Role Do Pre-IPO Private Communications Play? (August 23, 2019). Available at SSRN: https://ssrn.com/abstract=3224911 or http://dx.doi.org/10.2139/ssrn.3224911

Cynthia Shunyao Jin

Michigan State University

Eli Broad College of Business
East Lansing, MI 48824-1122
United States

Michael D. Kimbrough

University of Maryland - Robert H. Smith School of Business ( email )

Robert H. Smith School of Business
College Park, MD 20742-9157
United States
301-405-8222 (Phone)
301-314-9414 (Fax)

Isabel Wang (Contact Author)

Michigan State University ( email )

N233 Business Complex
Broad School of Business
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.msu.edu/~wangyany/

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