Disclosure Crowdsourcing by Lawyers

Michael Drake, Brigham Young University
Kenneth Merkley, Indiana University
Chase Potter, Indiana University
John Treu, West Virginia University

ABSTRACT
Lawyers play an important advisory role in the IPO process, but our understanding of how they influence the process is limited. We provide evidence on the extent to which the external legal counsel of a company undergoing an IPO engages in “disclosure crowdsourcing” by obtaining information from other companies’ IPO disclosures and the impact of such crowdsourcing on important IPO outcomes. We document an increase in disclosure crowdsourcing that begins approximately ten weeks prior to an IPO’s first S-1 filing and declines after thereafter. We find that disclosure crowdsourcing is associated with more efficient interactions with the SEC during the pre-IPO filing review period, increased speed of price formation after the offering, and a decreased likelihood of litigation. Overall, the evidence suggests that companies experience several favorable IPO-related outcomes when their legal counsel engages in greater disclosure crowdsourcing.