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Moral hazard, asymmetric information and IPO lockups

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  • Yung, Chris
  • Zender, Jaime F.
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    Abstract

    Moral hazard and asymmetric information have both been proposed as the motive behind the use of IPO lockup provisions, with each receiving empirical support in the literature. Rather than consider them to be mutually exclusive motivations, we hypothesize that each is dominant for a different set of firms. We provide novel empirical support for the underwriter certification hypothesis then use this hypothesis to categorize the firms in our sample. Firms that are certified by a reputable underwriter see a reduction in the severity of asymmetric information relative to other firms and therefore will be more likely to see moral hazard as the friction that motivates the use of the lockup provision. For those firms that are unable to obtain high reputation underwriter certification it is relatively more likely that asymmetric information is the motivation for the use of the lockup provision. Based on this separation of firms we introduce and provide empirical support for a novel set of hypotheses concerning the lockup period.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 16 (2010)
    Issue (Month): 3 (June)
    Pages: 320-332

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    Handle: RePEc:eee:corfin:v:16:y:2010:i:3:p:320-332

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    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: Initial public offerings Asymmetric information Moral hazard IPO lockups;

    References

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    Cited by:
    1. Chahine, Salim & Arthurs, Jonathan D. & Filatotchev, Igor & Hoskisson, Robert E., 2012. "The effects of venture capital syndicate diversity on earnings management and performance of IPOs in the US and UK: An institutional perspective," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 179-192.

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