The accounting and market consequences of the JOBS Act of 2012: an early study

Abstract

Purpose Jumpstart Our Business Startups Act 2012 (the JOBS Act) was passed in 2012. JOBS Act enables emerging growth companies (EGCs) to go public without being subject to the full vigorous range of regulations applicable to publicly traded companies. The purpose of this paper is to study financial performance, Tobin’s Q-ratio and value relevance of EGCs. Design/methodology/approach The sample includes 620 IPOs during the period from April 5, 2009 to April 5, 2015. The analyses use firm-quarter observations. Findings The results show that EGCs have both lower financial performance, and a lower Tobin’s Q-ratio compared to the financial performance and Tobin’s Q-ratio of non-EGCs. Moreover, the value relevance of accounting information for EGCs is lower than the value relevance of accounting information for non-EGCs. Originality/value This study contributes to the accounting regulation literature by documenting the inferior market performance and financial information quality of EGCs, i.e., the unintended consequences of the JOBS Act.