“À la Carte” versus “Prix Fixe” Regulation: Evidence from Investors’ and Managers’ Reactions to Post-IPO Provisions in the JOBS Act

Date
2019-07-31
Authors
Li, Kevin
Tang, Vicki Wei
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Abstract
Employing a unique retroactive application in regulation, we examine investors’ and managers’ reactions to a shock that introduces “à la carte” elements to the post-IPO mandatory framework. Relative to “prix fixe” mandates, à la carte elements shift the tradeoff between compliance costs and investor protection from regulators to the regulated firm, which enables local optimization. Upon the enactment of the JOBS Act, retro-activated emerging growth companies (EGCs) report higher short-window returns than the control group. Retro-activated EGCs’ return is lower when sales and sales growth rate are higher, both of which indicate a shorter expected duration of EGC status. Furthermore, managers act in investors’ interests and for their own benefit while using the à la carte elements in post-IPO years. The evidence suggests that investors perceive the benefits from local optimization associated with à la carte elements exceed potential costs from managerial opportunism and the loss of information and commitment.
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à la carte mandates, prix fixe mandates, post-IPO mandatory framework, emerging growth companies, The JOBS Act
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