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IPO lockup expiration in the Middle East and North Africa

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  • Hakim, Tatiana
  • Lypny, Gregory
  • Bhabra, Harjeet S.
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    Abstract

    We examine stock market reaction to IPO lockup expiration for a sample of 60 companies in the Middle East and North Africa (MENA) region. Lockups in the MENA are set by regulators as opposed to being negotiated between firms and their underwriters, and are typically longer but vary less than those in the United States. The MENA therefore provides a unique environment in which to study the relationship between lockup length, firm ownership, and market reaction. We find that prices decline on unlock day much the same as they do in the United States. Longer lockups are associated with smaller declines, and this association is driven by non-family owned firms. We also find that family firms subject to longer lockups are more likely to experience bigger declines (or smaller increases) in trading volume than family firms under short lockup, but no such an association exists for non-family firms. Lockup length is negatively related to firm size and positively related to the fraction of IPO shares on offer that are primary, which is consistent with regulators setting shorter lockups for well-established firms and those signaling an ongoing commitment to the business. And while evidence of general IPO underpricing is inconclusive for the MENA, family firms that face short lockups are significantly more likely to enjoy higher returns on their first day of trading than family firms that face long lockups.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Multinational Financial Management.

    Volume (Year): 22 (2012)
    Issue (Month): 5 ()
    Pages: 252-262

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    Handle: RePEc:eee:mulfin:v:22:y:2012:i:5:p:252-262

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

    Related research

    Keywords: IPO; Underpricing; Lockup; Family firms;

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    References

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    1. Loughran, Tim & Ritter, Jay R. & Rydqvist, Kristian, 1994. "Initial public offerings: International insights," Pacific-Basin Finance Journal, Elsevier, vol. 2(2-3), pages 165-199, May.
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    3. Villalonga, Belen & Amit, Raphael, 2006. "How do family ownership, control and management affect firm value?," Journal of Financial Economics, Elsevier, vol. 80(2), pages 385-417, May.
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    8. Ritter, Jay R, 1984. "The "Hot Issue" Market of 1980," The Journal of Business, University of Chicago Press, vol. 57(2), pages 215-40, April.
    9. Brau, James C. & Lambson, Val E. & McQueen, Grant, 2005. "Lockups Revisited," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(03), pages 519-530, September.
    10. Welch, Ivo, 1989. " Seasoned Offerings, Imitation Costs, and the Underpricing of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 44(2), pages 421-49, June.
    11. Ibbotson, Roger G., 1975. "Price performance of common stock new issues," Journal of Financial Economics, Elsevier, vol. 2(3), pages 235-272, September.
    12. Laura Casares Field, 2001. "The Expiration of IPO Share Lockups," Journal of Finance, American Finance Association, vol. 56(2), pages 471-500, 04.
    13. Stoughton, Neal M. & Zechner, Josef, 1998. "IPO-mechanisms, monitoring and ownership structure," Journal of Financial Economics, Elsevier, vol. 49(1), pages 45-77, July.
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