April 25, 2012
JOBS Forum: Score One for David's Interest Group
Posted by Usha Rodrigues

Reading the mandatory disclosure chapter of Easterbrook and Fischel's The Economic Structure of Corporate Law, I was struck by this passage:

The securities laws may be designed to protect special interests at the expense of investors.  They possess many of the characteristics of interest-group legislation.  Existing rules give large issuers an edge, because many of the costs of disclosure are the same regardless of the size of the firm or the offering.  Thus larger or older firms face lower flotation costs per dollar than do smaller issuers.

Based on limited knowledge (much enhanced by Bob's helpful history of the JOBS Act), I had the sense that JOBS was a product of luck and interest group politics, warnings of the SEC and John Coffee be damned (He testified to Congress: "There is no need for such an open-ended exemption, largely benefitting larger firms or for such a dramatic retreat from the principle of transparency that has long governed our securities markets in order to spur job creation at smaller firms."). I am certainly struck, as Bob is, by the lack of cost-benefit analysis in picking the numbers for the on and off ramps for emerging growth company status.

But I guess the counterargument is that the whole of securities regulation is a product of interest group politics, and it's all tilted in favor of big companies.  JOBS Act is just a rare case of the  little guy triumphing over establishment Goliath. 

I'm not sure I buy it.  We'll all know more after empirical studies on how the companies who opt out of the on-ramp (and into the regular securities disclosure regime) fare compared to those companies who choose emerging growth company status.  I'm wondering how many years of data we need for these studies to be meaningful.  And I'm hoping for some really bad titular puns.  Like "Highway to Hell."  Or "No Exit for Investors."  Or "The Utility of Signaling When Merging onto U.S. Stock Markets." Or...OK, I'll stop now.

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