Information design and capital formation

The problem that we study is of theoretical interest, but it is also topical: the Jumpstart Our Business Startups (JOBS) Act, which was signed into law in April 2012, substantially eases securities regulations for small companies going public. The declared intent of this change in regulation was to promote capital formation in new and small companies. Our results indicate that the provisions of this new legislation are in line with its intentions. Less stringent requirements on information disclosure for smaller firms may also benefit investors.