Privileged information access, analyst consensus building, and stock return volatility: Evidence from the JOBS Act

Abstract

This study examines whether allowing select analysts private access to management before an IPO affects analyst consensus building and subsequently post-IPO stock return volatility. The 2012 Jumpstart Our Business Startups (JOBS) Act creates many exemptions to reduce the cost of going public for smaller issuers that qualify as an Emerging Growth Company (EGC). One set of provisions allows analysts affiliated with an EGC's underwriters to communicate privately with management and potential investors before the IPO. Using a sample of IPOs during 2001–2022, we find that the dispersion in affiliated analysts' initiation forecasts is significantly higher for EGCs than similar IPOs in the pre-JOBS period. A path analysis reveals that the JOBS Act indirectly contributes to the heightened post-IPO stock return volatility through the mediating role of forecast dispersion among affiliated analysts. Our exploratory analyses suggest that more significant variations in affiliated analysts' social connections and their workload tend to be associated with higher forecast dispersion. Overall, our findings indicate that having privileged access to management could reduce consensus among analysts, which can increase post-IPO stock return volatility in EGCs.