The Jobs Act Did Not Raise IPO Underpricing

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