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1 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&Dintensive 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.

2 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 See, e.g. Fleeing to Foreign Shores archived at

3 GOING PUBLIC AFTER THE JOBS ACT available at archived at See, e.g.the Costs of Being Public After Sarbanes-Oxley: The Irony of Going Private Why Do Firms Go Dark? Causes and Economic Consequences of Voluntary SEC Deregistrations See, e.g.the High Cost of IPOs Depresses Venture Capital in the United States Thinking of Going Public? Think Twice, Then Read the Sarbanes-Oxley Act of 2002 See, e.g. available at archived at The Law of Unintended Consequences: The Effects of the Sarbanes-Oxley Act on Venture Funding of Smaller Enterprises Going-Private Decisions and the Sarbanes-Oxley Act of 2002: A Cross- Country Analysis supra

4 OHIO STATE LAW JOURNAL infra Id. archived at see Twitter Files for Initial Public Offering archived at infra See infra See infra

5 GOING PUBLIC AFTER THE JOBS ACT See infra See infra See infra See infra See infra See infra The JOBS Act II is Coming! archived at See infra See infra

6 OHIO STATE LAW JOURNAL See, e.g. Evidence on What CFOs Think About the IPO Process: Practice, Theory, and Managerial Implications The Birth of Rule 144A Equity Offerings What Makes a Company a Good Candidate for Going Public? Criteria, Advantages, and Disadvantages Related to Going Publicin Seesupra see also Security Offerings in SeeThe Choice of IPO Versus Takeover: Empirical Evidence See Why Do Companies Go Public? An Empirical Analysis See Going Public, Selling Stock, and Buying Liquidity

7 GOING PUBLIC AFTER THE JOBS ACT The Costs of Becoming Public Regulatory Compliance Costs See Deconstructing Equity: Public Ownership, Agency Costs, and Complete Capital Markets Deciding Whether to Go Public: Certain Basic Considerations in See, e.g. Carving a New Path to Equity Capital and Share Liquidity See Venture Capital and the Structure of Capital Markets: Banks Versus Stock Markets See See SeeSmall Business and the SEC: A Guide for Small Businesses on Raising Capital and Complying with the Federal Securities Laws archived at

8 OHIO STATE LAW JOURNAL See see also Seeavailable atarchived at see also Id.

9 GOING PUBLIC AFTER THE JOBS ACT See See Executive Compensation: The New Compensation Discussion and Analysis See see also Proceed at Your Peril: Crowdfunding and the Securities Act of 1933 See See, e.g. See

10 OHIO STATE LAW JOURNAL supra See available at archived at Id. Id. See available at archived at infra infrasee generally supra See infra

11 GOING PUBLIC AFTER THE JOBS ACT Underwriters (Gross) Spread See, e.g. supra See id. Id. Seesupra See supra Seesupra Id. See Are There Economies of Scale in Underwriting Fees? Evidence of Rising External Financing Costs The Seven Percent Solution Are Initial Returns and Underwriting Spreads in Equity Issues Complements or Substitutes?

12 OHIO STATE LAW JOURNAL IPO Underpricing See Seasoned Equity Offerings: Quality of Accounting Information and Expected Flotation Costs See, e.g. supra IPO Underpricing in supra Investment Banking and Securities Issuancein Tesla Motors, Inc. Stock Quote & Summary Data archived at See supra See supra See

13 GOING PUBLIC AFTER THE JOBS ACT available at archived at see infra see infra see infra infra Seesupra SeeIssuer Expenses and Legal Liability in Initial Public Offerings Anatomy of Initial Public Offerings of Common Stock Id. See, e.g. supra SeeA Model of the Demand for Investment Banking Advising and Distribution Services for New Issues See Seasoned Offerings, Imitation Costs, and the Underpricing of Initial Public Offerings See Why New Issues Are Underpriced See Institutional Allocation in Initial Public Offerings: Empirical Evidence SeeInvestment Banking, Reputation, and the Underpricing of Initial Public Offerings

14 OHIO STATE LAW JOURNAL ex ante The Costs of Being Public See, e.g.evidence of Information Spillovers in the Production of Investment Banking Services IPO Pricing in the Dot-com Bubble Venture Capitalist Certification in Initial Public OfferingsThe Hot Issue Market of 1980 See The Pricing of Initial Public Offerings: Tests of Adverse-Selection and Signaling Theories See infra see alsosupra Seegenerally supra

15 GOING PUBLIC AFTER THE JOBS ACT Seesupra See, e.g. available at archived at See generally See id. See, e.g. The New Public Corporation Public Governance SeeSarbanes-Oxley: The Evidence Regarding the Impact of SOX 404 ee e.g.

16 OHIO STATE LAW JOURNAL See available at archived at See infra Seesuprainfra See supra See, e.g. Corporate Investment and Stock Market Listing: A Puzzle? See Agency, Information and Corporate Investment in supra But see supra

17 GOING PUBLIC AFTER THE JOBS ACT Justifying a Mandatory Disclosure Regime See, e.g. supra See infra SeeThe Securities Act at Its Diamond Jubilee: Renewing the Case for a Robust Registration Requirement See Can Internet Offerings Bridge the Small Business Capital Barrier? See Mandatory Disclosure and the Protection of Investors But see The Financial Reporting Environment: Review of the Recent Literature

18 OHIO STATE LAW JOURNAL See The Theory and Practice of Securities Disclosure But seefairness, Utility, and Market Risk Information and the Cost of Capital Securities Laws and the Social Costs of Inaccurate Stock Prices Information Asymmetry, Information Precision, and the Cost of Capital See Issuers and Investor Protection in Mandatory Disclosure as a Solution to Agency Problems See generally Market Failure and the Economic Case for a Mandatory Disclosure System See Patching a Hole in the JOBS Act: How and Why to Rewrite the Rules That Require Firms to Make Periodic Disclosures SeeAn Argument for Imposing Disclosure Requirements on Public Companies See, e.g.supra

19 GOING PUBLIC AFTER THE JOBS ACT Seesupra See, e.g. Investor Protection and Interest Group Politics See Protection from What? Investor Protection and the JOBS Act SeeAccuracy Enhancement, Agency Costs, and Disclosure Regulation See, e.g.supra See infra Seesupra

20 OHIO STATE LAW JOURNAL Pre-JOBS Exemptions for Small Issuers Seesupra Publicness in Contemporary Securities Regulation After the JOBS Act The Law and Economics of Scaled Equity Market Regulation See, e.g. Portable Reciprocity: Rethinking the International Reach of Securities Regulation Retaining Mandatory Securities Disclosure: Why Issuer Choice Is Not Investor EmpowermentSecurities Regulation as Lobster Trap: A Credible Commitment Theory of Mandatory Disclosure Empowering Investors: A Market Approach to Securities Regulation The Need for Competition in International Securities Regulation See,e.g. see also Smaller Reporting Companies: Disclosure and Governance Considerations available at archived at supra

21 GOING PUBLIC AFTER THE JOBS ACT supra supra See supra

22 OHIO STATE LAW JOURNAL The JOBS Act & the Going Public Decision of EGCs Scaled Disclosure Requirements During IPO See id. supra See Jumpstart Our Business Startups Act Frequently Asked Questions

23 GOING PUBLIC AFTER THE JOBS ACT Scaled Disclosure Requirements After IPO archived at See supra See supra See Seesupra See supra See supra See supra Seesupra

24 OHIO STATE LAW JOURNAL Id. Id. supra See Fixing 404 The Case Against Exempting Smaller ReportingCompanies from Sarbanes-Oxley Section 404: Why Market-Based Solutions Are Likely to Harm OrdinaryInvestors See See

25 GOING PUBLIC AFTER THE JOBS ACT Testing the Waters & Confidential Submissions Id. See See available at archived at See supra

26 OHIO STATE LAW JOURNAL See supra See, e.g. Testing the Waters The SEC s Feet Go from Wet to Cold supra

27 GOING PUBLIC AFTER THE JOBS ACT Alternatives to IPOs in the Post-JOBS World See available at archived at See supra Seesupra

28 OHIO STATE LAW JOURNAL See supra supra supra See, e.g. supra Id. See supra

29 GOING PUBLIC AFTER THE JOBS ACT SeeSEC Adopts Amendments to Rule 506 and Rule 144A to Permit General Solicitation and General Advertising, and Proposes Additional Related Requirements archived at available at archived at see alsoquestioning the 500 Equity Holders Trigger Id. See Id.

30 OHIO STATE LAW JOURNAL See Id. See id. Id. supra See Information Issues on Wall Street 2.0 supra Securities Law s Dirty Little Secret

31 GOING PUBLIC AFTER THE JOBS ACT Assessing the Potential Impact of the JOBS Act See supra See supra See supra supra infra

32 OHIO STATE LAW JOURNAL available at archived at See, e.g. supra See, e.g. Spurring Job Growth Through Capital Formation While Protecting Investors: Hearings Before the S. Comm. on Banking, Hous. & Urban Affairs But see Capital Markets Relief: JOBS (Jumpstart Our Business Startups) Act Eases Regulatory Barriers to IPOs and Other Capital Raising Alternatives archived at

33 GOING PUBLIC AFTER THE JOBS ACT Constructing the IPO Database See supra See infra See IPO SCOOP Rating Scorecard archived at Seesupra See EDGAR Company Filings archived at see also supra SeeDivision of Corporation Finance: Standard Industrial Classification (SIC) Code List

34 OHIO STATE LAW JOURNAL Changes in IPO Volume After JOBS archived at SeeJumpstart Our Business Startups Act Frequently Asked Questions supra Why Has IPO Underpricing Changed Over Time?See Founding Dates for 9,902 Firms Going Public in the U.S. During archived at Seeinfra Seesupra

35 GOING PUBLIC AFTER THE JOBS ACT See

36 OHIO STATE LAW JOURNAL IPO Volume by EGC Status Total Pre-JOBS % Total Post-JOBS %

37 GOING PUBLIC AFTER THE JOBS ACT greater Adoption of Scaled Disclosure by EGCs See supra See infra See infra See supra

38 OHIO STATE LAW JOURNAL Filing of a Confidential Draft Registration Statement See supra See supra See supra Seesupra See supra See supra See supra Seeinfra

39 GOING PUBLIC AFTER THE JOBS ACT IPOs by EGCs Finalized in Post-JOBS Period Filed 2-years 2-years 2-CDA 107 Period N Conf. S-1 audited selected tables Opt-Out Seeinfra

40 OHIO STATE LAW JOURNAL IPOs by EGCs Commenced in Post-JOBS Period Filed 2-years 2-years 2-CDA 107 Period N Conf. S-1 audited selected tables Opt-Out Financial & Executive Compensation Disclosure See infra Seesupra

41 GOING PUBLIC AFTER THE JOBS ACT Compliance with Revised Accounting Standards Seesupra Seesupra See supra Seesupra

42 OHIO STATE LAW JOURNAL Id. See supra Seesupra See, e.g. available at archived at See e.g. available at archived at see also available at archived at See available at

43 GOING PUBLIC AFTER THE JOBS ACT Scaled Disclosure & Issuer Characteristics archived at available at archived at See, e.g. available at archived at See, e.g.supra See, e.g.id. See, e.g.available at archived at supra

44 OHIO STATE LAW JOURNAL See supra Seeinfra Seeinfra See supra Seeinfra See supra See Division of Corporation Finance: Standard Industrial Classification (SIC) Code List supra Seeinfra

45 GOING PUBLIC AFTER THE JOBS ACT Financial Disclosure & IPO Characteristics See supra See supra

46 OHIO STATE LAW JOURNAL Characteristics of Small IPO Issuers See supra Seesupra

47 GOING PUBLIC AFTER THE JOBS ACT Overview of Findings See supra Seesupra Seesupra Seesupra Seesupra Seesupra

48 OHIO STATE LAW JOURNAL 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 Seesupra See

49 GOING PUBLIC AFTER THE JOBS ACT IPO Regulatory Compliance Costs Post-JOBS Pre-JOBS Seesupra Seesupra

50 OHIO STATE LAW JOURNAL Underwriters Spread Ex ante See supra Seeinfra See supra See supra Seeinfra

51 GOING PUBLIC AFTER THE JOBS ACT See supra SeeThe Effect of the JOBS Act on Underwriting Spreads

52 OHIO STATE LAW JOURNAL Underwriting Spreads Post-JOBS Pre-JOBS Seesupra Seesupra see id.

53 GOING PUBLIC AFTER THE JOBS ACT IPO Underpricing Seesupra See supra See, e.g. Do Investment Banks Compete in IPOs?: The Advent of the 7% Plus Contract See infra Seeinfra Seesupra Seesupra

54 OHIO STATE LAW JOURNAL See supra See supra See See supra See supra

55 GOING PUBLIC AFTER THE JOBS ACT Underpricing Post-JOBS Pre-JOBS See supra See, e.g. suprasee also supra Seesupra

56 OHIO STATE LAW JOURNAL Overview of Findings Seesupra See supra See infra

57 GOING PUBLIC AFTER THE JOBS ACT Being Public After JOBS See supra See The Costs and Benefits of Mandatory Securities Regulation: Evidence from Market Reactions to the JOBS Act of 2012 available at archived at See id. See supra See, e.g. available at archived at available at archived at

58 OHIO STATE LAW JOURNAL See supra See, e.g. supra See available at, archived at See available at archived at See supra Seesupra

59 GOING PUBLIC AFTER THE JOBS ACT available at archived at See supra See supra See supra

60 OHIO STATE LAW JOURNAL See, e.g. While IPOs Soar, Many Firms Prefer to Stay Away

61 GOING PUBLIC AFTER THE JOBS ACT Y i = + 1 EGC i + 2 PostJOBS i + 3 EGC i *PostJOBS i + 4j ji + i (1) i EGC i Post-JOBS i EGC i *PostJOBS i Z ji Regulatory Compliance Costs and Underwriters Spread RegCost i See supra See supra See supra

62 OHIO STATE LAW JOURNAL Spread i PostJOBS + EGC*PostJOBS EGC*PostJOBS Underpricing of IPOs IPORet i i i. IPORet i EGCPost-JOBS EGC supra supra See supra Seeinfra

63 GOING PUBLIC AFTER THE JOBS ACT Post-JOBS PostJOBS + EGC*PostJOBS EGC*PostJOBS See supra See infra Seeinfra Seeinfra

64 OHIO STATE LAW JOURNAL Direct Offering Costs in Pre- and Post-JOBS Periods Small Post-JOBS LogRevenues LogProceeds.

65 GOING PUBLIC AFTER THE JOBS ACT IPO Returns During the Pre- and Post-JOBS Periods i i Small Post-JOBS LogRevenues LogProceeds.

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