The JOBS Act and Post IPO Performance of EGC Firms

Abstract

This study examines whether the Jumpstart Our Business Startups Act (JOBS Act) makes it possible for lower quality firms to go public in terms of worse post IPO performances. The JOBS Act creates a new category of issuer, the Emerging Growth Company (EGC), and eases disclosure requirements for IPO firms with EGC status. Measuring firm’s post IPO performances using different profitability margin ratios and stock returns, I find that post IPO profitability within four years is significantly lower for IPO firms with EGC status after JOBS Act than IPO firms with EGC status before JOBS Act. Stock returns within four years post IPO are not significantly different. Taken together, the findings indicate that the JOBS Act’s eased disclosure requirements has made it possible for lower quality firms to go public and the market has not yet reacted negatively to lower quality firms going public.