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The Costs and Benefits of Mandatory Securities Regulation: Evidence from Market Reactions to the JOBS Act of 2012

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  • Dharmapala, Dhammika
  • Khanna, Vikramaditya

Abstract

The effect of mandatory securities regulation on firm value has been a long-standing concern across law, economics, finance, and accounting. The Jumpstart Our Business Startups (JOBS) Act relaxed disclosure and compliance obligations under US securities law for a new category of firms known as “emerging growth companies†(EGCs). EGCs were defined retroactively to include firms that conducted initial public offerings (IPOs) between December 8, 2011, and the enactment of the Act on April 5, 2012. We analyze market reactions for EGCs around key legislative events in March 2012, relative to a control group of otherwise similar firms that conducted IPOs in the months preceding the cutoff date. We find positive and statistically significant abnormal returns of between 3% and 4% for EGCs around the most important of these dates. This suggests that the value to investors of the disclosure and compliance obligations relaxed under the JOBS Act is outweighed by the associated compliance costs.

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  • Dharmapala, Dhammika & Khanna, Vikramaditya, 2016. "The Costs and Benefits of Mandatory Securities Regulation: Evidence from Market Reactions to the JOBS Act of 2012," Journal of Law, Finance, and Accounting, now publishers, vol. 1(1), pages 139-186, April.
    • Handle: RePEc:now:jnllfa:108.00000004
    DOI: 10.1561/108.00000004
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    1. Dharmapala, Dhammika & Khanna, Vikramaditya, 2018. "The impact of mandated corporate social responsibility: Evidence from India’s Companies Act of 2013," International Review of Law and Economics, Elsevier, vol. 56(C), pages 92-104.
    2. Dhammika Dharmapala, 2016. "Estimating the Compliance Costs of Securities Regulation: A Bunching Analysis of Sarbanes-Oxley Section 404(b)," CESifo Working Paper Series 6180, CESifo.
    3. Lai, Tat-kei & Ng, Travis, 2017. "Does dividend tax impede competition for corporate charters?," Journal of Comparative Economics, Elsevier, vol. 45(4), pages 751-772.
    4. Laux, Volker & Stocken, Phillip C., 2018. "Accounting standards, regulatory enforcement, and innovation," Journal of Accounting and Economics, Elsevier, vol. 65(2), pages 221-236.
    5. Merello, Paloma & Barberá, Antonio & la Poza, Elena De, 2022. "Is the sustainability profile of FinTech companies a key driver of their value?," Technological Forecasting and Social Change, Elsevier, vol. 174(C).

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    More about this item

    Keywords

    Securities regulation; JOBS Act of 2012; Emerging growth companies;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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