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Indirect Costs of the JOBS Act: Disclosures, Information Asymmetry, and Post-IPO Liquidity

This paper examines the impact of the recently passed JOBS Act on the behavior of market participants. Using the JOBS Act -- which relaxed mandatory information disclosure requirements -- as a natural experiment on firms' choices of the optimal mix of hard and soft information, we find that relative to a peer group of firms, IPO firms reduce disclosures of hard information and change disclosures of soft information. Because it allows a partial revelation of IPO quality, only soft information affects underpricing. We also find that the SEC changes its behavior post-JOBS Act in responding to draft registration statements. Specifically, the SEC's comment letters to firms are more negative in tone, and more forceful in their recommendations, focusing on hard information. Finally, under the JOBS Act, investors place more emphasis on the information produced by the SEC when pricing the stock. Returns following public release of the letters vary by about 4% based on letter tone.