Too much information? Increasing firms' information advantages in the IPO process

Abstract

The declining number of U.S. public companies has attracted concern from regulators, prompting changes to make the IPO process more attractive. One set of changes (the JOBS Act) was designed to reduce IPO costs by allowing eligible firms to test the waters with investors and reduce disclosure, both of which increase firms' information advantage over investors. We model firm behavior in response to this increased information advantage and using a difference-in-difference setting, we show that while these changes have benefited some firms, they have led to a decrease rather than an increase in the number of firms going public.

Keywords: IPOs, information acquisition, information asymmetry, regulation, unintended consequences, JOBS Act

JEL Classification: D82, G14, G30