The Impact of the JOBS Act on the Costs of Going Public: Evidence from Long-Term Audit Costs

Accounting and Business Research, forthcoming

48 Pages Posted: 18 Jul 2024

See all articles by Sudip Gupta

Sudip Gupta

Johns Hopkins University - Carey Business School

Joseph Micale

New Jersey Institute of Technology - Martin Tuchman School of Management

Ashok Robin

Rochester Institute of Technology (RIT) - E. Philip Saunders College of Business

Rong Yang

Rochester Institute of Technology

Date Written: July 01, 2024

Abstract

The Jumpstart Our Business Startups (JOBS) Act (2012) allows reduced compliance costs for IPOs with less than $1 billion in revenues. While prior research has focused on the Act's ability to reduce short-term IPO compliance costs, we investigate how the Act affected key observable compliance costs-audit fees-over the five years the issuing firm is eligible for this reduced level of disclosure/compliance. In contrast to prior findings of increased short-term audit costs, we find that long-term audit costs decreased by 16.6 percent, or $172,000 for IPO firms following JOBS, relative to the change fees for in control firms unaffected by the regulation. After investigating other consequences of the Act, we find greater information uncertainty for affected firms following JOBS. However, we find lower accrual-based earnings management as responses to these information frictions. We find the reductions in earnings management is driven by firms with the greatest information uncertainty with investors, suggesting that affected firms take additional steps to mitigate the information risks in light of their inherently riskier IPOs. Overall, we present a fuller picture of the costs/benefits and risk mitigation in post-JOBS IPOs.

Keywords: EGC, JOBS Act, audit fees, audit pricing, SOX 404(b), IPO regulation JEL Classification: G10, G18, M41, M42

Suggested Citation

Gupta, Sudip and Micale, Joseph and Robin, Ashok and Yang, Rong, The Impact of the JOBS Act on the Costs of Going Public: Evidence from Long-Term Audit Costs (July 01, 2024). Accounting and Business Research, forthcoming, Available at SSRN: https://ssrn.com/abstract=4895201 or http://dx.doi.org/10.2139/ssrn.4895201

Sudip Gupta

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Joseph Micale (Contact Author)

New Jersey Institute of Technology - Martin Tuchman School of Management ( email )

United States

Ashok Robin

Rochester Institute of Technology (RIT) - E. Philip Saunders College of Business ( email )

105 Lomb Memorial Dr.
Rochester, NY 14623
United States

Rong Yang

Rochester Institute of Technology ( email )

Saunders College of Business
Rochester Institute of Technology
Rochester, NY 14623
United States

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