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Information Revealed through the Regulatory Process: Interactions between the SEC and Companies ahead of Their IPO

Author

Listed:
  • Michelle Lowry
  • Roni Michaely
  • Ekaterina Volkova
  • Francesca Cornelli

Abstract

We analyze communications between the SEC and firms prior to IPOs using LDA analysis and KL divergence. The SEC’s concerns closely map onto the regulator’s stated mandate: companies increase prospectus disclosures on precise topics of SEC concern. Revenue recognition is the dominant topic of SEC concern, and it is not independently discovered by investors. Increased SEC concern about it is associated with greater secondary sales, lower post-IPO liquidity, lower post-IPO returns, and a higher probability of withdrawal. The regulator’s role during the capital raising process results in increased transparency but contributes to delays in the going public process.

Suggested Citation

  • Michelle Lowry & Roni Michaely & Ekaterina Volkova & Francesca Cornelli, 2020. "Information Revealed through the Regulatory Process: Interactions between the SEC and Companies ahead of Their IPO," The Review of Financial Studies, Society for Financial Studies, vol. 33(12), pages 5510-5554.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:12:p:5510-5554.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa007
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    Citations

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    Cited by:

    1. Ananthan Nambiar & Tobias Rubel & James McCaull & Jon deVries & Mark Bedau, 2021. "Dropping diversity of products of large US firms: Models and measures," Papers 2110.08367, arXiv.org.
    2. Chris Florackis & Christodoulos Louca & Roni Michaely & Michael Weber & Itay Goldstein, 2023. "Cybersecurity Risk," The Review of Financial Studies, Society for Financial Studies, vol. 36(1), pages 351-407.
    3. Bret A. Johnson & Ling Lei Lisic & Joon Seok Moon & Mengmeng Wang, 2023. "SEC comment letters on form S-4 and M&A accounting quality," Review of Accounting Studies, Springer, vol. 28(2), pages 862-909, June.
    4. Hitoshi Iwasaki & Ying Chen & Jun Tu, 2023. "Topic tones of analyst reports and stock returns: A deep learning approach," International Review of Finance, International Review of Finance Ltd., vol. 23(4), pages 831-858, December.
    5. Daniel Borup & Jorge Wolfgang Hansen & Benjamin Dybro Liengaard & Erik Christian Montes Schütte, 2023. "Quantifying investor narratives and their role during COVID‐19," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(4), pages 512-532, June.
    6. Cyrus Aghamolla & Richard T. Thakor, 2022. "Do Mandatory Disclosure Requirements for Private Firms Increase the Propensity of Going Public?," Journal of Accounting Research, Wiley Blackwell, vol. 60(3), pages 755-804, June.
    7. Longhao Xu & Zhijian James Huang & Fenghua Wen, 2022. "Comment letters and stock price synchronicity: evidence from China," Review of Quantitative Finance and Accounting, Springer, vol. 59(4), pages 1387-1421, November.
    8. Simon Fritzsch & Philipp Scharner & Gregor Weiß, 2021. "Estimating the relation between digitalization and the market value of insurers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(3), pages 529-567, September.
    9. Tang, Wenjin & Bu, Hui & Zuo, Yuan & Wu, Junjie, 2024. "Unlocking the power of the topic content in news headlines: BERTopic for predicting Chinese corporate bond defaults," Finance Research Letters, Elsevier, vol. 62(PA).
    10. Han, Mengrui & Ying, Qianwei & Huang, Li, 2023. "Firms’ delayed replies and investor confidence: Evidence from M&A comment letters in China," Finance Research Letters, Elsevier, vol. 56(C).

    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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