Disclosure and lawsuits ahead of IPOs

49 Pages Posted: 30 Mar 2020 Last revised: 5 Oct 2020

See all articles by Burcu Esmer

Burcu Esmer

University of Pennsylvania - The Wharton School

N. Bugra Ozel

University of Texas at Dallas

Suhas A. Sridharan

Emory University - Goizueta Business School

Date Written: March 4, 2020


IPO firms face strong concerns about proprietary disclosure, prompting regulators to allow submission of IPO registration statements confidentially under the JOBS Act. Prior research documents severe underpricing and other asymmetric information costs associated with obscuring information prior to an IPO. Nonetheless, the vast majority of eligible firms elect the confidential filing provision. In this study, we examine reducing non-shareholder litigation risk as a specific and quantifiable benefit that justify the use of this provision. We show that firms that publicly submit their registration with the SEC experience a 25% increase in non-shareholder lawsuits during the pre-IPO period. In contrast, a matched sample of firms that utilize the confidential filing provision do not experience such an increase. The difference between the two groups is concentrated among lawsuits in which the plaintiff is a business, rather than an individual, and among lawsuits that are more likely to be meritless. We find no disproportionate increase in non-shareholder lawsuits for the confidential filers following the IPO, which suggests that withholding information before the IPO period mitigates, rather than delays, opportunistic litigation.

Keywords: Non-shareholder lawsuits; corporate disclosure; initial public offerings; JOBS Act

JEL Classification: G10, G32, K20, K41, M41

Suggested Citation

Esmer, Burcu and Ozel, N. Bugra and Sridharan, Suhas A., Disclosure and lawsuits ahead of IPOs (March 4, 2020). Available at SSRN: https://ssrn.com/abstract=3548863 or http://dx.doi.org/10.2139/ssrn.3548863

Burcu Esmer

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

HOME PAGE: http://https://fnce.wharton.upenn.edu/profile/_whrtn78/

N. Bugra Ozel

University of Texas at Dallas ( email )

800 W Campbell Rd SM41
Richardson, TX 75201
United States

Suhas A. Sridharan (Contact Author)

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

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