Can Lowering the Bar Revive Public Markets? Evidence from the JOBS Act

Abstract

The Jumpstart Our Business Startups (JOBS) Act has not led to a sustained recovery in IPO activity, but to poorer-quality firms raising public equity. Firms going public under the Act are largely cash-starved, pay dearly to raise equity, and often rely on further public issues to avert financial distress. Proceeds raised are used to do more hiring, repay debt, and boost executive pay, but not to increase investments. Many firms lose exemptions sooner than allowed by the Act, whereupon they face higher compliance costs. The JOBS Act has not revived public equity markets and may have even undermined their attractiveness.

Keywords: JOBS Act, Initial public offering, Regulation, Equity financing

JEL Classification: G14, G24, G28, G32