The impact of the JOBS Act and Corporate Governance on IPO Underpricing

Abstract

This study investigates the effects of the Jumpstart Our Business Startups Act (JOBS Act) on information uncertainty and what attributes of corporate governance improve the asymmetry of information. The JOBS Act creates a new category of an issuer referred to as «Emerging Growth Companies (EGCs)» and allow them to be exempt from some mandatory disclosures. This research extends the study of Landsman et al. (2018) including the effect of corporate governance. We gather a dataset of 781 IPOs listed in the USA, which are separated into 682 EGCs and 99 Non-EGCs (NEGCs), for the period 2007 – 2017. Our findings suggest that an EGC firm will probably be underpriced at a higher level, after the implementation of the JOBS Act. In addition, an older CEO enhances the firm value, contributing to a lower level of IPO underpricing. Finally, it unreasonably seems that NEGCs underpriced at a higher level than EGCs after the JOBS Act implementation.