Impact of Lock-Up Provision on Two IPO Anomalies in the Immediate Aftermarket

Norliza Che-Yahya (), Ruzita Abdul-Rahim and Rasidah Mohd-Rashid
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Norliza Che-Yahya: Faculty of Business and Management, Universiti Teknologi MARA, Malaysia
Ruzita Abdul-Rahim: Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Malaysia

Capital Markets Review, 2015, vol. 23, issue 1&2, 25-39

Abstract: Lock-up provision may extend its role as a signaling tool, albeit its practice is mainly to ensure the commitment of major shareholders to the well-being of IPO companies at least during lock-up period. Despite the mandatory lock-up ratio of 45 percent of outstanding shares, the voluntary action of major shareholders which is revealed through higher locked ratios signals some information about the IPO companies, for instance quality of the issuers. The information signaled through the voluntary action elicits different investors’ trading behavior and subsequently performance of IPO in the immediate aftermarket. This paper examines the impact of lock-up provision on two IPO anomalies in the immediate aftermarket; initial return and flipping activity. Employing data of 383 Malaysian IPOs listed from January 2000 to December 2013, multiple regression analysis reveals that lock-up provision (period and ratio) influences flipping activity, more via its committing role instead of signaling role.

Keywords: Lock-up Provision; Initial Return; Flipping Activity; Malaysian IPO Market. (search for similar items in EconPapers)
JEL-codes: G12 G31 (search for similar items in EconPapers)
Date: 2015
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