Jay R. Ritter is Cordell Professor of Finance at the University of Florida’s Warrington College of Business Administration.
Is JOBS Bill really necessary?
The Jumpstart Our Business Startups (check to make sure that this is what JOBS stands for?) bill has little to do with jobs. It is based on the assumption that more IPOs would result in more jobs, but the relation between IPOs and job creation is tenuous. Companies with good business models create jobs, but funding companies with bad prospects does not create jobs that last. The fact of the matter is that the average small company going public in the last thirty years has not produced many jobs, and on average investors have been burned. Companies like Google and Microsoft were already big companies at the time of their IPO. Small companies are having trouble going public because investors are skeptical about the ability of small companies to earn profits, and this skepticism is justified.
What are the advantages and disadvantages of the JOBS Bill in light of the financial crisis 2008?
Some of the features of the Bill are things that could be changed by regulators, without a law that is very difficult to change as the economy evolves over time. The advantage of financial regulations is that they can be changed as we find out what works and what does not work. Having said that, the U.S. Secuities and Exchange Commission can be criticized for not revising its regulations frequently enough. And the SEC has a lot to answer for, having blown the Madoff and Stanford Ponzi scheme investigations. If the SEC hired more financial economists and fewer lawyers, I think that they would have fewer embarrassments. The 2008 financial crisis was not the fault of the SEC, however. Congress, especially Barney Frank and Chris Dodd, as well as the bank regulators, deserve more of the blame.
How wise is it to exempt crowd-financing from the usual disclosure requirements, in a time, when investors are referred to as “Muppets”?
Venture capitalists provide both money and advice. If they were only funding the companies with great prospects, venture capitalists and their investors would be earning high returns. But over the last decade, their problem has been that they have earned low returns. This suggests that there are not a lot of projects out there that have great prospects but a lack of funds. When the market doesn't fund a company with poor investment prospects, the market isn't failing, the market is working. My prediction is that crowd funding will not become a big deal. I predict that investors will lose a small amount of money, and that crowd funding will not become a big thing. Crowd funding provides the money, but not the advice.
Thank you very much.
Jay R. Ritter is Cordell Professor of Finance at the University of Florida’s Warrington College of Business Administration, Department of Finance Insurance & Real Estate. Research Interests: Initial Public Offerings, Asset Pricing, Valuation, Investment Banking.