Going Public After the JOBS Act

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.

OHIO STATE LAW JOURNAL

The Costs of Becoming Public Regulatory Compliance Costs Underwriters’ (Gross) Spread IPO Underpricing

The Costs of Being Public

Justifying a Mandatory Disclosure Regime Pre-JOBS Exemptions for Small Issuers The JOBS Act & the Going Public Decision of EGCs

Scaled Disclosure Requirements During IPO Scaled Disclosure Requirements After IPO Testing the Waters & Confidential Submissions Alternatives to IPOs in the Post-JOBS World

Assessing the Potential Impact of the JOBS Act

Constructing the IPO Database Changes in IPO Volume After JOBS Adoption of Scaled Disclosure by EGCs

Filing of a Confidential Draft Registration Statement Financial & Executive Compensation Disclosure Compliance with Revised Accounting Standards Scaled Disclosure & Issuer Characteristics Overview of Findings

The Costs of Going Public After JOBS Regulatory Compliance Costs Underwriters’ Spread IPO Underpricing Overview of Findings

Being Public After JOBS

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archived at

GOING PUBLIC AFTER THE JOBS ACT

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Scaled Disclosure Requirements During IPO

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supra

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Scaled Disclosure Requirements After IPO

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Fixing 404The Case Against Exempting Smaller

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Testing the Waters & Confidential Submissions

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supra

infra



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Barriers to IPOs and Other Capital Raising Alternatives

archived at


Constructing the IPO Database

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archived at see also supra

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Changes in IPO Volume After JOBS

archived at

See Jumpstart Our Business Startups Act Frequently Asked Questions supra

Why Has IPO Underpricing Changed Over Time? SeeFounding Dates for 9,902 Firms Going Public in the U.S. During 1975-2014

archived at

See infra

See supra


See


IPO Volume by EGC Status

Total Pre-JOBS 178 156 87.6%

Total Post-JOBS 270 229 84.8%


greater

Adoption of Scaled Disclosure by EGCs

See supra

See infraSee infraSee supra


Filing of a Confidential Draft Registration Statement

See supra See supra

See supra

See supra See supra

See supra See supraSee infra


IPOs by EGCs Finalized in Post-JOBS Period

Period N

Filed

Conf. S-1

2-years

audited

2-years

selected

2-CDA

tables

§107

Opt-Out

See infra


IPOs by EGCs Commenced in Post-JOBS Period

Period N

Filed

Conf. S-1

2-years

audited

2-years

selected

2-CDA

tables

§107

Opt-Out

Financial & Executive Compensation Disclosure

See infra See supra


Compliance with Revised Accounting Standards

See supra See supra See supra

See supra


Id.See supra

See supra

See, e.g.available at

archived at

See e.g.available at

archived at

see alsoavailable at

archived at

See available at


Scaled Disclosure & Issuer Characteristics

archived at

available at

archived at


archived at

See, e.g. supra

See, e.g. id.

See, e.g. available at

archived at

supra


See supra

See infra

See infra

See supra

See infra

See supraSee Division of Corporation Finance:

Standard Industrial Classification (SIC) Code List supra See infra


Financial Disclosure & IPO Characteristics

See supraSee supra


Characteristics of Small IPO Issuers

See supraSee supra


Overview of Findings

See supra

See supra

See supra

See supra See supra

See supra


The Costs of Going Public After JOBS

Regulatory Compliance Costs

See, e.g. Revisiting the Voting Prohibition in Bond Workouts available at

The Evolution of Contractual Terms in Sovereign Bonds

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See


IPO Regulatory Compliance Costs

Post-JOBS

Pre-JOBS

See supra See supra


Underwriters’ Spread

Ex ante

See supra

See infra See supraSee supraSee infra


See supraSee The Effect of the JOBS Act on Underwriting Spreads


Underwriting Spreads

Post-JOBS

Pre-JOBS

See supra

See supra

see id.


IPO Underpricing

See supraSee supra

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See infra See infra See supraSee supra


See supraSee supra

SeeSee supra

See supra


Underpricing

Post-JOBS

Pre-JOBS

See supra See, e.g.

supra see also supra

See supra


Overview of Findings

See supra

See supra

See infra


Being Public After JOBS

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Market Reactions to the JOBS Act of 2012 available at

archived at

See id.See supra


archived at

available at

archived at


See supra

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, archived at

Seeavailable at

archived at

See supra

See supra


available at

archived at

See supraSee supra

See supra


See, e.g.While IPOs Soar, Many Firms Prefer to Stay Away


Yi = + 1EGCi + 2 PostJOBSi + 3EGCi *PostJOBSi + 4j ji + i (1)

i EGCi

Post-JOBSi

EGCi*PostJOBSi

Zji

Regulatory Compliance Costs and Underwriters’ Spread

RegCosti

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Spreadi

PostJOBS + EGC*PostJOBS

EGC*PostJOBS

Underpricing of IPOs

IPOReti

ii. IPOReti

EGC Post-JOBS

EGC

supra

supra

See supra

See infra


Post-JOBS

PostJOBS + EGC*PostJOBS

EGC*PostJOBS

See supra See infra

See infra

See infra


Direct Offering Costs in Pre- and Post-JOBS Periods

SmallPost-JOBS

LogRevenuesLogProceeds

.


IPO Returns During the Pre- and Post-JOBS Periods

ii

SmallPost-JOBS

LogRevenues

LogProceeds

.

Documents

Going Public After the JOBS Act