The JOBS Act and Post-IPO Information Uncertainty: What Role Do Pre-IPO Private Communications Play?

The Jumpstart Our Business Startups (JOBS) Act creates many exemptions to reduce the cost of going public for smaller issuers that qualify as an Emerging Growth Company (EGC). One set of provisions allows analysts affiliated with EGCs’ underwriters to communicate privately with management and potential investors before the IPOs. Our study examines whether such provisions affect EGCs’ post-IPO information uncertainty. Using a sample of 853 IPOs during 2004-2016, we find that the dispersion in analysts’ initiation forecasts is significantly higher for EGCs compared to similar IPOs in the pre-JOBS period. This higher dispersion is largely driven by affiliated analysts and is associated with larger post-IPO return volatility. Further analysis suggests that larger variations in affiliated analysts’ soft skills are associated with higher forecast dispersion after the JOBS Act. Overall, our findings indicate that allowing affiliated analysts the option of pre-IPO private communications may contribute to increased information uncertainty for EGCs.