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The Jobs Act Did Not Raise IPO Underpricing

Author

Listed:
  • Even-Tov Omri
  • N. Patatoukas Panos
  • S. Yoon Young

Abstract

While the intended goal of the 2012 Jumpstart Our Business Startups 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 initial public offering (IPO) underpricing and a higher cost of equity capital for EGC issuers. Using a difference-in-differences research 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.

Suggested Citation

  • Even-Tov Omri & N. Patatoukas Panos & S. Yoon Young, 2022. "The Jobs Act Did Not Raise IPO Underpricing," Critical Finance Review, now publishers, vol. 11(3-4), pages 431-471, August.
    • Handle: RePEc:now:jnlcfr:104.00000117
    DOI: 10.1561/104.00000117
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    More about this item

    Keywords

    JOBS Act; Emerging growth companies; IPO pricing;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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