Back in October I posted about a fantastic conference at the University of Kentucky on the Securities Act at 80. I've just posted my article on SSRN, abstract below. Any guesses on which JOBS Act change had an effect on underwriting spreads? You'll have to download to find out!*
*OK, that was kind of obnoxious, I'll just tell you. I find a statistically significant correlation between emerging growth companies that file a confidential draft registration statement and a lower gross spread. But go read the whole thing and tell me what you think.
U.S. underwriting fees, or spreads, have somewhat inexplicably clustered around 7% for years, a phenomenon that some have suggested evidences implicit collusion. The goal of Title I the JOBS Act of 2012 was to make going public easier for smaller firms; certain provisions specifically should make the underwriters’ task less risky, and thus less expensive. Presuming these provisions are effective, then one would predict that underwriting spreads would decrease as the costs to the underwriter for a public offering declined. Admittedly the prior presumption is a big one: it may be that the JOBS Act reforms were largely ineffective, and thus could be expected to have little effect on underwriter cost. This article is the first to examine post-JOBS Act underwriting spreads to determine whether spreads have in fact declined. A finding that underwriting costs stayed constant might be evidence of either collusion or that the JOBS Act was ineffective at reducing the cost of going public. I find that one provision has lowering the spread, thus suggesting elasticity in the spread and offering at least some evidence of the Act’s effectiveness.
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