The influence of lock-up provisions on IPO initial returns: Evidence from an emerging market

Rasidah Mohd Rashid, Ruzita Abdul-Rahim and Othman Yong
Authors registered in the RePEc Author Service: Rasidah mohd-rashid

Economic Systems, 2014, vol. 38, issue 4, 487-501

Abstract: A lock-up agreement ensures that major shareholders retain significant economic interest in the companies following the IPOs. Rationally, these insiders will not adhere to the lock-up agreement unless the benefits of doing so can more than offset the costs. Therefore, in an environment characterized by high information asymmetry, a lock-up agreement can serve as an effective mechanism to signal the risk or quality of firms. This article examines whether the lock-up ratio and lock-up period affect the initial returns, using a sample of 384 IPOs listed on Bursa Malaysia between 2000 and 2012. The results of the cross-sectional multiple regression show that the lock-up period is significantly positive in explaining IPO initial returns, but the lock-up ratio is not. The findings provide new insights for testing the signaling content of lock-up provisions, particularly in a setting characterized by high information asymmetry.

Keywords: Lock-up agreement; Initial returns; Malaysia IPO market; Signaling content (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:38:y:2014:i:4:p:487-501

DOI: 10.1016/j.ecosys.2014.03.003

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