JOBS Act 2017 and Corporate Governance on IPOs Underpricing

Abstract

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