The Rationale for IPO Lockup Agreements: Agency or Signaling?

Fei Gao () and Mazhar A. Siddiqi
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Fei Gao: Kelley College of Business, Hardin-Simmons University, Abilene, TX 79698, USA
Mazhar A. Siddiqi: College of Business, University of North Texas, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2012, vol. 15, issue 03, 1-18

Abstract: Most Initial Public Offerings (IPOs) feature share lockup agreements, which prohibit insiders and other pre-IPO shareholders from selling their shares for a specified period of time following IPO. We explore possible reasons why some IPO firms voluntarily agree to have a much longer lockup period than other firms. We find evidence that lockup agreements are used to control agency costs. Longer lockups are significantly related to inferior long-run returns and this relationship is stronger for firms that have less reputable underwriters. We find no evidence that lockup agreements are used to signal firm quality and we are unable to relate firm quality, as measured by long-run returns, to information asymmetry variables.

Keywords: IPO; lockup; agency; signaling (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2012
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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DOI: 10.1142/S0219091512500130

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