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Information Revelation Through Regulatory Process: Interactions Between the SEC and Companies Ahead of the IPO

Author

Listed:
  • Michelle Lowry

    (Drexel University)

  • Roni Michaely

    (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute)

  • Ekaterina Volkova

    (University of Melbourne - Faculty of Business and Economics)

Abstract

The regulator plays an active role in the IPO process via its pre-IPO communications with firms, writing 3.8 comment letters per company. To evaluate the regulator’s input, we analyze these communications between the SEC and firms using LDA-analysis and KL-divergence. Main topics of SEC concerns map closely into the regulator’s stated mandate: companies increase prospectus disclosures within precise topics of SEC concern. Questions related to revenue recognition are most informative about company valuation. These concerns are not independently uncovered by investors. This dynamic process of information disclosure results in increased transparency, but at a cost of delays in going public.

Suggested Citation

  • Michelle Lowry & Roni Michaely & Ekaterina Volkova, 2019. "Information Revelation Through Regulatory Process: Interactions Between the SEC and Companies Ahead of the IPO," Swiss Finance Institute Research Paper Series 19-47, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp1947
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    More about this item

    Keywords

    Regulation; IPO; Disclosure;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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