Abstract:
The Jumpstart Our Business Startups Act of 2012 (JOBS Act) represents one of the most comprehensive overhauls of the securities laws in recent years. One of the principal goals of the JOBS Act is to improve access to the capital markets for smaller issuers, referred to in the act as emerging growth companies, or EGCs. To accomplish this goal, the JOBS Act seeks to reduce the costs of conducting a public offering and complying with the ensuing reporting obligations by making certain disclosure requirements voluntary for EGCs.
This Article examines whether these scaled disclosure rules have increased the number of small issuers conducting an initial public offering (IPO) of their equity securities and the extent to which these issuers have taken advantage of the various exemptions available to them under the JOBS Act. The evidence presented in this Article shows that EGCs have increasingly taken advantage of several of the scaled disclosure provisions of the JOBS Act during their IPOs. EGCs that take advantage of these scaled disclosure provisions are smaller, younger and more likely to belong to the R&D-intensive pharmaceutical industry. Notably, despite the fact that EGCs are embracing these scaled disclosure provisions, there has not been a noticeable increase in the proportion of IPOs conducted by issuers that qualify as EGCs. The Article explores two interrelated explanations for these seemingly contradictory findings.
First, the evidence indicates that the benefits of the JOBS Act may not be as significant as may have been expected. While the direct costs of conducting an IPO have not decreased for EGCs following the enactment of the JOBS Act, indirect costs may have actually increased. In addition, by their second fiscal year, over forty percent of issuers that went public as EGCs no longer qualify for such status, a fact that limits the expected ongoing benefits of the JOBS Act at the going public decision stage. Second, certain issuers that qualify for EGC status may be choosing to pursue private offerings, which certain provisions of the JOBS Act facilitate. Changes in the mix of small issuers going public following the enactment of the JOBS Act suggest such a shift in the pattern of going public decisions across firms.
The Jumpstart Our Business Startups Act of 2012 (JOBS Act) represents one of the most comprehensive overhauls of the securities laws in recent years. One of the principal goals of the JOBS Act is to improve access to the capital markets for smaller issuers, referred to in the act as emerging growth companies, or EGCs. To accomplish this goal, the JOBS Act seeks to reduce the costs of conducting a public offering and complying with the ensuing reporting obligations by making certain disclosure requirements voluntary for EGCs.
This Article examines whether these scaled disclosure rules have increased the number of small issuers conducting an initial public offering (IPO) of their equity securities and the extent to which these issuers have taken advantage of the various exemptions available to them under the JOBS Act. The evidence presented in this Article shows that EGCs have increasingly taken advantage of several of the scaled disclosure provisions of the JOBS Act during their IPOs. EGCs that take advantage of these scaled disclosure provisions are smaller, younger and more likely to belong to the R&D-intensive pharmaceutical industry. Notably, despite the fact that EGCs are embracing these scaled disclosure provisions, there has not been a noticeable increase in the proportion of IPOs conducted by issuers that qualify as EGCs. The Article explores two interrelated explanations for these seemingly contradictory findings.
First, the evidence indicates that the benefits of the JOBS Act may not be as significant as may have been expected. While the direct costs of conducting an IPO have not decreased for EGCs following the enactment of the JOBS Act, indirect costs may have actually increased. In addition, by their second fiscal year, over forty percent of issuers that went public as EGCs no longer qualify for such status, a fact that limits the expected ongoing benefits of the JOBS Act at the going public decision stage. Second, certain issuers that qualify for EGC status may be choosing to pursue private offerings, which certain provisions of the JOBS Act facilitate. Changes in the mix of small issuers going public following the enactment of the JOBS Act suggest such a shift in the pattern of going public decisions across firms.
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