Effects of lock-up expiry on bid-ask spread of Malaysian IPOs

Abdolhossein Zameni and Othman Yong

American Journal of Finance and Accounting, 2017, vol. 5, issue 1, 64-84

Abstract: This paper examines the lock-up provisions of initial public offerings (IPOs) and their effect on bid-ask spread changes around the lock-up expiry date of 379 Malaysian IPOs, issued during January 2001 to December 2011. The event study approach and the comparison period returns approach (CPRA) by Masulis (1980) are used. The results of the study indicate that investors and market makers are sceptical about the future of the companies before and after the lock-up expiry of some boards and sectors, which results in an increased adverse selection element of the bid-ask spread. The increased adverse selection element of bid-ask spread dominants the trading volume increase around the lock-up expiry and results in share price drop. Consequently, market makers prefer to increase the spread to protect themselves against informed traders.

Keywords: lock-up provision; Malaysian IPOs; bid-ask spread behaviour; information asymmetry; event studies. (search for similar items in EconPapers)
Date: 2017
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