Small companies are filing for initial public offerings at a quickened pace, and researchers at the University of Buffalo who track the trend say Congress is to thank for passing the Jump-start Our Business Startups Act, or JOBS Act.

In April of 2012, Congress passed the JOBS Act to create an “IPO on-ramp” that would remove a few barriers to going public for new companies with less than $1 billion in annual revenue. The JOBS Act eases companies through the process by removing or reducing accounting and disclosure requirements and by permitting firms to start talking with investors about their plans before filing any information with the government for extra protection from competitors.  

Since then, the number of U.S. businesses that have filed for an IPO has increased by 21 per year, the researchers found. This represents a 25 percent increase over a 10-year period from 2001-2011, before the JOBS Act was in place. The team that led the study, which is to be published in the Journal of Financial Economics, conclude that this legislation made a real difference.

“In the two years following the JOBS Act, U.S. IPO volume was 50 percent higher than in the two previous years,” the authors write. “In comparison, IPO volume in the five other developed countries with the largest stock exchanges (Australia, Canada, Hong Kong, Japan and the United Kingdom) increased by only 14 percent over the same interval.”

In 2014, the dollar volume of U.S. IPOs was the highest of any year since 2000 at a total of $94.8 billion, according to Dealogic. That spike represents a 55 percent boost from 2013 and shows that progress has continued since the Buffalo researchers stopped collecting data in March 2014. Health care was the hottest sector for IPO filings in the past year with 104 companies making their Wall Street debut, beating out technology and finance. 

Prime among the Act's benefactors are pharmaceutical companies and biotechnology firms which are behind a full three-quarters of the IPOs filed over the past three years. The industries traditionally have very high costs prior to filing because they rely heavily on research and development that must occur in the infancy of the business. Many of the key provisions of the JOBS Act are designed to assist with those early stages.

“For example, without the JOBS Act, a pharmaceutical company would have to immediately reveal details about drugs they’re working on when going public, allowing rivals to counter with generic options,” Michael Dambra, a professor of accounting and law at University of Buffalo and a co-author of the study, said in a statement. Dambra acknowledges that the growth in IPOs also reflects market conditions and tried to control for these in his study. 

Before going public in October of 2013, GlycoMimetics, a biotechnology firm that created a treatment for sickle cell disease, met with 90 investors to receive feedback and gain better insight into the company’s potential valuation, according to CFO magazine. Brian Hahn, the company’s CFO, told the magazine that the new process established by the JOBS Act “has led to a sea change in how growing biotechs approach the public market."