Journal of Law, Finance, and Accounting > Vol 1 > Issue 1

The Costs and Benefits of Mandatory Securities Regulation: Evidence from Market Reactions to the JOBS Act of 2012

Dhammika Dharmapala, University of Chicago Law School, USA, dharmap@uchicago.edu , Vikramaditya Khanna, University of Michigan Law School, USA, vskhanna@umich.edu
 
Suggested Citation
Dhammika Dharmapala and Vikramaditya Khanna (2016), "The Costs and Benefits of Mandatory Securities Regulation: Evidence from Market Reactions to the JOBS Act of 2012", Journal of Law, Finance, and Accounting: Vol. 1: No. 1, pp 139-186. http://dx.doi.org/10.1561/108.00000004

Publication Date: 29 Apr 2016
© 2016 D. Dharmapala and V. Khanna
 
Subjects
Regulation
 
Keywords
G18K22
Securities regulationJOBS Act of 2012Emerging growth companies
 

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In this article:
1. Introduction 
2. A Simple Conceptual Framework 
3. The JOBS Act and its Legislative History 
4. Data and Empirical Strategy 
5. Results 
6. Discussion and Conclusion 
References 

Abstract

The effect of mandatory securities regulation on firm value has been a long-standing concern across law, economics, finance, and accounting. The Jumpstart Our Business Startups (JOBS) Act relaxed disclosure and compliance obligations under US securities law for a new category of firms known as “emerging growth companies” (EGCs). EGCs were defined retroactively to include firms that conducted initial public offerings (IPOs) between December 8, 2011, and the enactment of the Act on April 5, 2012. We analyze market reactions for EGCs around key legislative events in March 2012, relative to a control group of otherwise similar firms that conducted IPOs in the months preceding the cutoff date. We find positive and statistically significant abnormal returns of between 3% and 4% for EGCs around the most important of these dates. This suggests that the value to investors of the disclosure and compliance obligations relaxed under the JOBS Act is outweighed by the associated compliance costs.

DOI:10.1561/108.00000004