Flying under the Radar: Confidential Filings and IPO Lawsuits

49 Pages Posted: 30 Mar 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

Abstract

Despite strong incentives to increase visibility and disclosure before initial public offerings (IPOs), many firms take advantage of the confidential filing provisions of the JOBS Act of 2012 to obscure their financial and non-financial information prior to IPOs. We posit that one potential reason for holding back information prior to an IPO is to reduce litigation. We focus not on shareholder litigation but on litigation from other sources (e.g. competitors, ex- and current employees, and patent trolls). We show that firms that publicly file their registration statement with the SEC experience a 25% increase in lawsuits during pre-IPO period, whereas a matched sample of firms that file confidentially under the provisions of the JOBS Act 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. There is no disproportionate increase in lawsuits for the confidential filers following the IPO, which suggests that withholding information during the IPO period mitigates, rather than delays, opportunistic litigation.

Keywords: JOBS Act, corporate disclosure, litigation risk, corporate lawsuits, initial public offering

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

Suggested Citation

Esmer, Burcu and Ozel, N. Bugra and Sridharan, Suhas A., Flying under the Radar: Confidential Filings and IPO Lawsuits (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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