SEC Workload, IPO Filing Reviews, and IPO Pricing

Abstract

We analyze the interaction between high workload of the Securities and Exchange Commission (SEC) staff and the information production stimulated by their review process of initial public offerings (IPOs). We find that high workload is associated with more general comments in the first letter, with fewer overall comments for later letters, and that the SEC answers quicker while being busy. Using a measure of initial SEC concerns based on comment counts, we reinforce the empirical evidence on the relationship between the IPO filing review and (downward) offer price revisions. However, this correlation disappears for IPOs, where the filing review is conducted under a high workload. Consistent with theories on investor compensation and information asymmetry, we find underpricing to be significantly larger for these IPOs.

Keywords: Initial Public Offering, SEC, Workload, Stress, Comment Letter, Price Revision, Review Process, Information Production

JEL Classification: G18, G14, G41, M41, M48