Jan 25 (Reuters) - Shares of U.S. companies that went public under the Jobs Act are outperforming those that did not, data shows.
What exactly that means is hard to say. To supporters of the controversial Jumpstart Our Business Startups (JOBS) Act, which loosened investor protections for investments in smaller companies, the strong performance underscores the benefits of the law. The Jobs Act allows companies to raise capital and shareholders to benefit from their growth.
To the law’s skeptics, the data means nothing because the Jobs Act has only been in effect for nine months, which also happens to be a period when U.S. stock markets have been rallying and investors have grown more willing to take risk.
“The real test will come when it isn’t doing as well and you have investors getting nervous about smaller, riskier companies,” said Reena Aggrawal, a professor of business administration at Georgetown University’s McDonough School of Business.
Share prices for companies that went public under the Jobs Act have on average risen 28.9 percent from their offer price, compared with 13.1 percent for those that did not, according to market data firm Ipreo.
Since the Jobs Act went into effect in April 2012, 61 companies have gone public as “emerging growth companies” under that law, while 30 bigger companies that are not eligible for the law’s benefits have gone public. Being considered an “emerging growth” under the law allows a company to pay lower registration fees and disclose less information to investors when it goes public.
Jobs Act companies, which are largely concentrated in high growth industries like technology and biotech, have also outperformed the Russell 2000 Growth index, a barometer of small cap growth stocks that rose roughly 11 percent during the same period.
For example, shares of Eloqua, a business software company which went public in August 2012 under the Jobs Act, have more than doubled since their IPO. Shares closed on Thursday at $23.49.
Non-Jobs Act companies, meanwhile, are typically larger and more mature. Some are also private equity-backed like plastics product maker Berry Plastics Group Inc which went public at $16 in October and has seen shares rise around 10 percent.
To be sure, lawyers and bankers say that most “emerging growth” companies that go public under the law are not taking full advantage of its provisions because investors are not willing to be too lenient. For example, most companies are reporting as much information as a larger company would and are following the same accounting rules regarding items like outside audits.
“By and large, I‘m seeing issuers generally adhere to standards of disclosure applicable to companies prior to the Jobs Act,” said Glenn Pollner, a partner at Gibson, Dunn & Crutcher, who works on capital markets transactions.
Some “emerging growth” companies are taking advantage of the law’s confidential filing provision, which allows firms to submit registration documents to the SEC away from public eyes.
Investors say that because the law has removed some of their protections, they are evaluating emerging growth companies even more closely than before.
And despite strong performance from these companies so far, consumer advocates still say they’re skeptical of the law’s benefits.
“When you open the flood gates, reduce regulation and make it easier for even legitimate companies to go public, it’s also an invitation for bad actors,” said Sally Greenberg, executive director of the National Consumers League, a non-profit group that represents consumers on marketplace issues.
In the end, it will take awhile before the effects of the law are clear, experts said.
“It’s still too early to tell,” Georgetown’s Aggrawal said.