JOBS Act 2017 and Corporate Governance on IPOs Underpricing

Abstract

IPO underpricing, JOBS Act 2017, corporate governance, non-EGCs.

This study examines the impact of Jumpstart Our Business Startups (JOBS Act) of 2017 and corporate governance on underpricing of IPO firms in shorter and longer horizon. A significant outcome of this new practice is that the revised confidential submission process is available to all public issuers, including non-Emerging Growth Companies. The nonpublic review process existed for EGCs under JOBS Act 2012 remains unchanged. For our analysis, we used a dataset of 787 US IPO firms for the period January 2013 to October 2020. Our findings suggest that there is not statistically significant higher underpricing in the post-JOBS Act period for non-EGCs, while for smaller firms (EGCs) we found significant higher information uncertainty in the period after the revised practice of 2017. Furthermore, we detected that the difference of underpricing of non-EGCs between the pre- and post- JOBS Act period is not statistical significantly higher than that of EGCs. Finally, from the regression analysis, for the board-related corporate governance mechanism and CEO compensation, we found a statistically significant association between Independence as well as Duality and underpricing in all windows.