IPO lock-up: a review and assessment

Sahil Narang () and Rudra P. Pradhan
Additional contact information
Sahil Narang: Indian Institute of Technology
Rudra P. Pradhan: Indian Institute of Technology

DECISION: Official Journal of the Indian Institute of Management Calcutta, 2021, vol. 48, issue 3, No 8, 343-369

Abstract: Abstract Initial public offering (IPO) lock-up is a bonding mechanism that restricts pre-IPO shareholders and insiders from selling a specific percentage of the shares over a stipulated period after the IPO. IPO lock-up has enormous implications in the real business world, and research on IPO lock-up is extremely broad. We synthesize the theories and findings in the IPO lock-up literature. Based on a rigorous reiterative systematic review, our study sub-divides lock-up literature into five major themes. First, we discuss three types of lock-up settings across the globe and the changing role of the decision-makers in varying settings. Second, we discuss the motives served through IPO lock-up, including signaling solution, firm commitment, and earnings forecast credibility. Third, we synthesize the literature on change in the market microstructure concerning the change in share prices, bid-ask spread, trading volume, and short selling activity around the IPO lock-up expiration. We also discuss the macro-level effect of lock-up expiration linked to the crash of internet stocks. Fourth, we throw light on the factors explaining these anomalous negative share price reactions around unlock events. In line with the wealth maximization objective, insiders of the firm tend to profitable exit. The fifth theme discusses several exit strategies applied by locked insiders for a profitable exit on lock-up expiration. We aim to minimize the recycled research in the field of IPO lock-ups and help researchers produce meaningful and novel research. In line with this, we attempt to focus on the direction which extant literature has built upon; thereafter, we specify directions for future research. The review is worth reading and targeted toward academic researchers, decision-makers in firms, policymakers, and investors in general.

Keywords: Literature review; IPO lock-up; Exit strategies; Lock-up expiration (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s40622-021-00286-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:decisn:v:48:y:2021:i:3:d:10.1007_s40622-021-00286-6

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/40622

DOI: 10.1007/s40622-021-00286-6

Access Statistics for this article

DECISION: Official Journal of the Indian Institute of Management Calcutta is currently edited by Rajesh Babu

More articles in DECISION: Official Journal of the Indian Institute of Management Calcutta from Springer, Indian Institute of Management Calcutta
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().