The Role of Lockups in Stock Mergers

Zhong Chen (), Yi Liu () and Stefano Rossi ()
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Zhong Chen: King’s Business School, King’s College London, London WC2B 4BG, United Kingdom
Yi Liu: Research Institute of Economics and Management, Southwestern University of Finance and Economics, Chengdu 611130, China
Stefano Rossi: Bocconi University, 20136 Milano, Italy

Management Science, 2025, vol. 71, issue 9, 7286-7311

Abstract: We document the frequent use of stock lockup agreements in mergers and acquisitions (M&As) paid in stock and examine the corporate determinants and consequences of the use and duration of lockups. Lockup agreements prohibit target shareholders from selling shares issued by the acquirer as a means of payment for a prespecified period. We find support for the hypothesis that target shareholders agree to lockups to precommit to hold on to the acquirer’s stock if they believe the merger’s long-term fundamentals are strong. Consistent with our hypothesis, lockups come with larger acquirer announcement returns, particularly when acquirer valuations are high; ex ante, lockup adoption likelihood increases with acquirers’ valuation. Lockups also come with higher deal completion likelihood, shorter merger negotiations, and higher long-term operating performance. We conclude the market interprets lockups as a signal of strong fundamentals, particularly when acquirers’ valuations are high.

Keywords: lockups; mergers and acquisitions; stock deals; equity valuation (search for similar items in EconPapers)
Date: 2025
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