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Signaling and initial public offerings: The use and impact of the lockup period

Author

Listed:
  • Arthurs, Jonathan D.
  • Busenitz, Lowell W.
  • Hoskisson, Robert E.
  • Johnson, Richard A.

Abstract

To reduce information asymmetries for potential investors considering investment in an IPO venture, owners can signal the firm's longer-term viability and quality in several ways. The lockup period, is one signal that can be offered. We investigated the lockup period of a sample of 640 ventures going through the IPO and find that a longer lockup period acts as a substitute signal to venture capital (VC) and prestigious underwriter backing. Furthermore, we find that ventures which have a going concern issue can reduce the amount of underpricing at the time of the IPO by accepting a longer lockup period.

Suggested Citation

  • Arthurs, Jonathan D. & Busenitz, Lowell W. & Hoskisson, Robert E. & Johnson, Richard A., 2009. "Signaling and initial public offerings: The use and impact of the lockup period," Journal of Business Venturing, Elsevier, vol. 24(4), pages 360-372, July.
  • Handle: RePEc:eee:jbvent:v:24:y:2009:i:4:p:360-372
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    References listed on IDEAS

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    Cited by:

    1. Che-Yahya, Norliza & Abdul-Rahim, Ruzita & Yong, Othman, 2014. "Influence of institutional investors' participation on flipping activity of Malaysian IPOs," Economic Systems, Elsevier, vol. 38(4), pages 470-486.
    2. Donald D. Bergh & Brian L. Connelly & David J. Ketchen Jr & Lu M. Shannon, 2014. "Signalling Theory and Equilibrium in Strategic Management Research: An Assessment and a Research Agenda," Journal of Management Studies, Wiley Blackwell, vol. 51(8), pages 1334-1360, December.
    3. Yin He & Bin Li & Yunhua Tian & Lijun Wang, 2016. "Does Foreign Venture Capital Provide More Value-added Services to Initial Public Offering Companies in China?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 24(2), pages 90-106, March.
    4. repec:eee:respol:v:46:y:2017:i:6:p:1133-1141 is not listed on IDEAS
    5. Sian Owen & Jo-Ann Suchard, 2013. "The impact of venture capital/private equity investment on the performance of IPOs in Australia," Chapters,in: Handbook of Research on IPOs, chapter 19, pages 400-420 Edward Elgar Publishing.
    6. repec:spr:infosf:v:19:y:2017:i:6:d:10.1007_s10796-016-9654-x is not listed on IDEAS
    7. repec:eee:finana:v:51:y:2017:i:c:p:25-53 is not listed on IDEAS
    8. Morricone, Serena & Munari, Federico & Oriani, Raffaele & de Rassenfosse, Gaetan, 2017. "Commercialization Strategy and IPO Underpricing," Research Policy, Elsevier, vol. 46(6), pages 1133-1141.
    9. Leif W. Lundmark & Chong Oh & J. Cameron Verhaal, 0. "A little Birdie told me: Social media, organizational legitimacy, and underpricing in initial public offerings," Information Systems Frontiers, Springer, vol. 0, pages 1-16.
    10. Wasim Ahmad & Ranko Jelic, 2014. "Lockup Agreements and Survival of UK IPOs," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(5-6), pages 717-742, June.
    11. Carey, Peter & Fang, Victor & Zhang, Hong Feng, 2016. "The role of optimistic news stories in IPO pricing," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 41(C), pages 16-29.
    12. Rosenbusch, Nina & Brinckmann, Jan & Müller, Verena, 2013. "Does acquiring venture capital pay off for the funded firms? A meta-analysis on the relationship between venture capital investment and funded firm financial performance," Journal of Business Venturing, Elsevier, vol. 28(3), pages 335-353.
    13. Bock, Carolin & Schmidt, Maximilian, 2015. "Should I stay, or should I go? – How fund dynamics influence venture capital exit decisions," Review of Financial Economics, Elsevier, vol. 27(C), pages 68-82.
    14. Reber, Beat & Vencappa, Dev, 2016. "Deliberate premarket underpricing and aftermarket mispricing: New insights on IPO pricing," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 18-33.
    15. Bruno S. Frey & Jana Gallus, 2014. "Awards are a Special Kind of Signal," CREMA Working Paper Series 2014-04, Center for Research in Economics, Management and the Arts (CREMA).
    16. Dehlen, Tobias & Zellweger, Thomas & Kammerlander, Nadine & Halter, Frank, 2014. "The role of information asymmetry in the choice of entrepreneurial exit routes," Journal of Business Venturing, Elsevier, vol. 29(2), pages 193-209.
    17. Dae-il Nam & Haemin Dennis Park & Jonathan D. Arthurs, 2014. "Looking Attractive until You Sell: Earnings Management, Lockup Expiration, and Venture Capitalists," Journal of Management Studies, Wiley Blackwell, vol. 51(8), pages 1286-1310, December.
    18. Li, Wanli & Cao, Ting & Feng, Zhaozhen, 2016. "Heterogeneous venture capital, M&A activity, and market response," Emerging Markets Review, Elsevier, vol. 29(C), pages 168-199.
    19. van Werven, Ruben & Bouwmeester, Onno & Cornelissen, Joep P., 2015. "The power of arguments: How entrepreneurs convince stakeholders of the legitimate distinctiveness of their ventures," Journal of Business Venturing, Elsevier, vol. 30(4), pages 616-631.
    20. Mohd Rashid, Rasidah & Abdul-Rahim, Ruzita & Yong, Othman, 2014. "The influence of lock-up provisions on IPO initial returns: Evidence from an emerging market," Economic Systems, Elsevier, vol. 38(4), pages 487-501.

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