Contracting under asymmetric information: Evidence from lockup agreements in seasoned equity offerings

Jonathan Karpoff (), Gemma Lee and Ronald Masulis

Journal of Financial Economics, 2013, vol. 110, issue 3, 607-626

Abstract: We document the frequent use of lockup agreements in seasoned equity offerings (SEOs) and examine the determinants of their use, duration, and early release. We find that the likelihood of an SEO lockup and its duration are positively related to issuer information asymmetry measures. Lockup duration is negatively related to underwriter spreads and underpricing, indicating that lockups lower expected flotation costs. Lockups are frequently released early following share prices rises. We conclude that lockups represent a contracting solution to asymmetric information and agency problems that plague equity issues by helping to insure SEO quality and deter opportunistic insider trading.

Keywords: Lockups; Information asymmetry; Seasoned equity offerings (search for similar items in EconPapers)
JEL-codes: G24 G32 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:110:y:2013:i:3:p:607-626

DOI: 10.1016/j.jfineco.2013.08.015

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