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The Expiration of IPO Share Lockups

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Author Info
Laura Casares Field
Abstract

We examine 1,948 share lockup agreements that prevent insiders from selling their shares in the period immediately after the IPO (typically 180 days). While lockups are in effect, there is little selling by insiders. When lockups expire, we find a permanent 40 percent increase in average trading volume, and a statistically prominent three-day abnormal return of - 1.5 percent. The abnormal return and volume are much larger when the firm is financed by venture capital, and we find that venture capitalists sell more aggressively than executives and other shareholders. We find limited support for several hypotheses that may explain the abnormal return, but no complete explanation. Copyright The American Finance Association 2001.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 56 (2001)
Issue (Month): 2 (04)
Pages: 471-500
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Handle: RePEc:bla:jfinan:v:56:y:2001:i:2:p:471-500

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  1. Didier Cossin & Benoît Leleux & Entela Saliasi, 2002. "Understanding the Economic Value of Legal Covenants in Investment Contracts: A Real-Options Approach to Venture Equity Contracts," Swiss Finance Institute Research Paper Series rp63, Swiss Finance Institute. [Downloadable!]
  2. Angenendt, P-P & Goergen, M. & Renneboog,, 2005. "Shareholder lock-in contracts : share price and trading volume effects at the lock-in expiry," Discussion Paper 30, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
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  3. Eric Hilt, 2007. "When did Ownership Separate from Control? Corporate Governance in the Early Nineteenth Century," NBER Working Papers 13093, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Harrison Hong & Jose Scheinkman & Wei Xiong, 2005. "Asset Float and Speculative Bubbles," Levine's Bibliography 122247000000000861, UCLA Department of Economics. [Downloadable!]
    Other versions:
  5. Ljungqvist, Alexander P & Nanda, Vikram & Singh, Rajdeep, 2001. "Hot Markets, Investor Sentiment and IPO Pricing," CEPR Discussion Papers 3053, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Steven Zheng & Joseph Ogden & Frank Jen, 2005. "Pursuing Value Through Liquidity in IPOs: Underpricing, Share Retention, Lockup, and Trading Volume Relationships," Review of Quantitative Finance and Accounting, Springer, vol. 25(3), pages 293-312, November. [Downloadable!] (restricted)
  7. Daying Yan & Jun Cai, 2003. "Long-Run Operating Performance of Initial Public Offerings in Japanese Over-the-Counter Market (1991–2001): Evidence and Implications," Asia-Pacific Financial Markets, Springer, vol. 10(2), pages 239-274, September. [Downloadable!] (restricted)
  8. Jarrod Johnston & Jeff Madura & Joel Harper, 2005. "Interaction Between Short Selling and Potential Insider Selling in the IPO Aftermarket," Journal of Financial Services Research, Springer, vol. 27(3), pages 283-302, September. [Downloadable!] (restricted)
  9. Espenlaub, S. & Goergen, M. & Khurshed, A. & Renneboog, L.D.R., 2002. "Lock-in agreements in venture capital backed UK IPOS," Discussion Paper 46, Tilburg University, Center for Economic Research. [Downloadable!]
  10. Jean Helwege & Christo Pirinsky & René M. Stulz, 2005. "Why Do Firms Become Widely Held? An Analysis of the ynamics of Corporate Ownership," NBER Working Papers 11505, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Helwege, Jean & Pirinsky, Christo & Stulz, Rene M., 2005. "Why Do Firms Become Widely Held? An Analysis of the Dynamics of Corporate Ownership," Working Paper Series 2005-14, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  12. Aggarwal, Reena & Klapper, Leora, 2003. "Ownership structure and initial public offerings," Policy Research Working Paper Series 3103, The World Bank. [Downloadable!]
  13. Goergen, M. & Renneboog, L.D.R. & Khurshed, A., 2004. "Shareholder lockup agreements in the European new markets," Discussion Paper 121, Tilburg University, Center for Economic Research. [Downloadable!]
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