Does General Solicitation Improve Access to Capital for Small Businesses? Evidence from the JOBS Act

Abstract

We examine whether Title II of the JOBS Act increases small firms’ access to capital. Under Title II, firms can sell private placement securities to the public via general solicitation (GS) or privately (non-GS). We find that GS offerings tend to be of lower quality than non-GS offerings. After accounting for selection, GS offerings are less likely to succeed, raise less capital, and incur substantial brokerage costs for advertising and verifying that investors are accredited. Our results imply the need to craft policies that induce better ways of signaling firm quality or more transparent approaches to reducing information asymmetry.

Keywords: JOBS Act, Raising Capital, Private Placements, SME Financing, Entrepreneurial Finance

JEL Classification: G24, G28, G32, G38, K22, L26