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Efficacy of the 1992 Small Business Incentive Act

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  • James C. Brau
  • J. Troy Carpenter
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    Abstract

    Purpose – The purpose of this paper is to test the fundamental purpose of the 1992 Small Business Incentive Act (SBIA) to reduce the regulatory burden for small firms to raise public equity capital. Design/methodology/approach – Our research compares initial public offerings (IPOs) that filed with the newer SB-2 program to benchmark firms that filed using the traditional S-1 filing. The authors use three proxies to measure success, hypothesizing that, if the regulatory burden has indeed been reduced for small firms, all three variables should be smaller for SB-2 IPOs. Univariate and multivariate analyses were conducted. Findings – With regards to easing regulatory costs, it is found that the program has not been effective. On average, SB-2 IPOs experience larger-scaled offering expenses, and pay higher underwriter gross spreads compared to S-1 IPOs of similar size. SB-2 IPOs, however, take fewer days to complete the registration process, when controlling for other relevant factors. In the burden of time, the SBIA has been effective. Practical implications – The paper is of value to managers of firms desiring to conduct an IPO. These managers, if they meet the size requirements dictated by the SEC, can elect to use an SB-2 or an S-1 document. The paper shows that if cost is the primary concern, the S-1 program should be preferred. If time is the primary consideration, then the SB-2 program is preferred. Originality/value – To the authors' knowledge, they are the first to test the efficacy of the SBIA program.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Financial Economic Policy.

    Volume (Year): 4 (2012)
    Issue (Month): 3 (August)
    Pages: 204-217

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    Handle: RePEc:eme:jfeppp:v:4:y:2012:i:3:p:204-217

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    Web page: http://www.emeraldinsight.com

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    Related research

    Keywords: Equity capital; Initial public offering; Legislation; SEC policy; Small Business Incentive Act of 1992; Small enterprises; United States of America;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Ritter, Jay R., 1987. "The costs of going public," Journal of Financial Economics, Elsevier, vol. 19(2), pages 269-281, December.
    2. James C. Brau & Gardner Gee, 2010. "Micro-IPOs: An Analysis of the Small Corporate Offering Registration (SCOR) Procedure with National Data," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 14(3), pages 69-89, Fall.
    3. James S. Ang & James C. Brau, 2002. "Firm Transparency and the Costs of Going Public," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 25(1), pages 1-17.
    4. Hsuan-Chi Chen & Jay R. Ritter, 2000. "The Seven Percent Solution," Journal of Finance, American Finance Association, vol. 55(3), pages 1105-1131, 06.
    5. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
    6. Daniel J. Bradley & John W. Cooney, Jr. & Steven D. Dolvin & Bradford D. Jordan, 2006. "Penny Stock IPOs," Financial Management, Financial Management Association, vol. 35(1), Spring.
      • Daniel J. Bradley & John W. Cooney Jr. & Steven D. Dolvin & Bradford D. Jordan, 2006. "Penny Stock IPOs," Financial Management, Financial Management Association International, vol. 35(1), pages 5-29, 03.
    7. Bradley, Daniel J. & Jordan, Bradford D., 2002. "Partial Adjustment to Public Information and IPO Underpricing," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(04), pages 595-616, December.
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