Does Advertising Improve Access to Capital for Small Businesses? Evidence from the JOBS Act

Abstract

We examine whether Title II of the JOBS Act increases small firms’ access to capital. Title II allows firms to sell securities via general solicitations to accredited investors. We find that firms that offer securities via general solicitation tend to be of lower quality. After accounting for selection, we find that general solicitation offerings are less likely to succeed, and they raise lower amounts of capital than other offerings. Moreover, general solicitation offerings incur substantial brokerage costs to verify that investors are accredited under the Act. Our results imply the need to craft policies that induce better ways of signaling firm quality or more transparent approaches to reducing information asymmetry.

Keywords: JOBS Act, Regulation, Equity Crowdfunding, Raising Capital, Private Placements, SME Financing, Entrepreneurial Finance

JEL Classification: G18, G24, G28, G32, G38, K22, L26