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Moral hazard, asymmetric information and IPO lockups

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  • Yung, Chris
  • Zender, Jaime F.

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.

Suggested Citation

  • Yung, Chris & Zender, Jaime F., 2010. "Moral hazard, asymmetric information and IPO lockups," Journal of Corporate Finance, Elsevier, vol. 16(3), pages 320-332, June.
  • Handle: RePEc:eee:corfin:v:16:y:2010:i:3:p:320-332
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Shamsul Bahrain Mohamed-Arshad & Kamarun Nisham Taufil-Mohd & Nurwati Ashikkin Ahmad-Zaluki, 2016. "Share Price and Trading Volume Reactions to Lockup Expiration in Malaysian IPOs," International Journal of Economics and Financial Issues, Econjournals, pages 958-962.
    2. repec:eee:intfin:v:49:y:2017:i:c:p:184-199 is not listed on IDEAS
    3. 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, pages 179-192.
    4. Hoque, Hafiz, 2014. "Role of asymmetric information and moral hazard on IPO underpricing and lockup," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 30(C), pages 81-105.
    5. Yan Zeng & Josie McLaren, 2015. "The impact of large public sales of Government assets: empirical evidence from the Chinese stock markets on a gradual and offer-to-get approach," Review of Quantitative Finance and Accounting, Springer, vol. 45(1), pages 137-173, July.

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