Capital markets executives at leading investment banks have conflicting views on the recently enacted JOBS Act, according to a new study by accounting and consulting firm BDO USA LLP.
While they see a positive impact on the IPO market in the U.S., they are also concerned that the law may open the door to potential scandals. A narrow majority of 55 percent of investment bankers believe the JOBS Act will be successful in increasing the number of businesses going public on U.S. exchanges. However, that growth will come with one major drawback as an identical majority of 55 percent of capital markets executives believe the new law’s rollback of regulatory requirements for these newly public companies increases the chances of scandals at these businesses.
Solid majorities of the capital markets community suggest that there will be a "positive impact" on the U.S. IPO market. Eighty percent of those surveyed see a positive impact in the JOBS Act's provisions that repeal the ban on investment banks from publishing analyst research on IPOs they are marketing. Another 74 percent see a positive impact from a five-year exemption from Sarbanes-Oxley mandated audits of internal controls. In addition, 66 percent of the investment bankers surveyed believe the legislation will increase shareholder thresholds for private businesses.
By more narrow majorities, 58 percent of the investment bankers surveyed also support the likelihood of a positive impact from the new law’s provisions to allow crowdfunding, while 52 percent see a positive impact from confidential SEC filings.
“The JOBS Act was the subject of much debate before it was signed into law and, based on our survey, the investment banking community seems to agree with both the law’s proponents and detractors,” said Brian Eccleston, a partner in the Capital Markets Practice of BDO USA. “Capital markets executives believe many of the new law’s provisions will have the desired impact of increasing IPO activity, but they also acknowledge that some of the very same provisions open the door to potential scandals. Bankers are particularly divided on how the law’s relaxed disclosure requirements may impact IPO pricings and whether the confidential SEC filings will have the desired effect of increasing offerings.”
A provision of the JOBS Act allows emerging growth companies to provide less information and requires fewer financial disclosures in their IPO documents and subsequent filings. While this may make it easier to go public, investment bankers were relatively split on how this provision will impact IPO pricings. A slight majority of 52 percent of the survey respondents said they are not concerned about the impact of the JOBS Act on IPO pricings, but this is considered a legitimate concern by the rest of the bankers surveyed. Forty-eight percent of the respondents said they feel this lack of information will ultimately have a negative impact on IPO pricing.