The Jobs Act Did Not Raise IPO Underpricing

Critical Finance Review

54 Pages Posted: 29 Jun 2021 Last revised: 8 Nov 2021

See all articles by Omri Even-Tov

Omri Even-Tov

Haas School of Business - UC Berkeley

Panos N. Patatoukas

Berkeley Haas

Young S. Yoon

University of California, Berkeley - Haas School of Business

Date Written: September 30, 2020

Abstract

While the intended goal of the 2012 JOBS Act was to ease access to capital for Emerging Growth Companies (EGCs), prior studies, notably Barth et al. (2017), find evidence of an increase in IPO underpricing and a higher cost of equity capital for EGC issuers. Using a difference-in-differences design, we find that changes in overall IPO market conditions explain the seeming increase in IPO underpricing. In fact, EGC issuers that take advantage of the accounting disclosure relief afforded by the Act raise capital at higher pre-IPO multiples. These reduced-accounting disclosure EGCs have more speculative valuation profiles and lower institutional ownership and are more likely to destroy long-term shareholder value in the IPO aftermarket. Overall, our paper offers an alternative perspective on the effect of the JOBS Act on IPO pricing.

Keywords: JOBS Act, Emerging Growth Companies, IPO Pricing

JEL Classification: G20, G24, G38, K22

Suggested Citation

Even-Tov, Omri and Patatoukas, Panos N. and Yoon, Young S., The Jobs Act Did Not Raise IPO Underpricing (September 30, 2020). Critical Finance Review, Available at SSRN: https://ssrn.com/abstract=3868590 or http://dx.doi.org/10.2139/ssrn.3868590

Omri Even-Tov (Contact Author)

Haas School of Business - UC Berkeley ( email )

Haas School of Business
Berkeley, CA 94720
United States
3104302236 (Phone)

Panos N. Patatoukas

Berkeley Haas ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

HOME PAGE: http://https://sites.google.com/berkeley.edu/panos

Young S. Yoon

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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