JOBS Act and Information Uncertainty
A recent paper titled “The JOBS Act and Information Uncertainty in IPO Firms,” published by Mary E. Barth, Wayne R. Landsman, and Daniel J. Taylor, has garnered quite a bit of attention. The paper examines the extent to which omission of certain information by emerging growth companies (EGCs) can be tied to IPO underpricing. According to the paper, EGCs that present compensation information for fewer than five top executives and present fewer than three years of audited financial statements are associated with higher levels of underpricing. It is difficult to conclude whether there really is a correlation since, in our experience, many of the EGCs that choose to rely on the accommodations and omit this information are concentrated in particular sectors and those are usually associated with underpricing. Similarly, in our experience, many companies in those sectors have concentrated ownership and existing investors participating in the IPOs. The paper also concludes that EGCs have higher levels of institutional ownership than non-EGCs. This may not be all that surprising given trends in private capital raising over the last eight to ten years. The authors suggest that this information should be considered in connection with additional regulatory reforms that might reduce disclosure burdens. Without more detail comparing the sectors of the companies that are or are not EGCs, and of the EGCs that choose to omit disclosures, and the pricing issues specific to IPOs of companies in such sectors, as well as of companies by age or maturity, it would seem difficult to draw any conclusions.