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The Rationale for IPO Lockup Agreements: Agency or Signaling?

  • Fei Gao

    ()

    (Kelley College of Business, Hardin-Simmons University, Abilene, TX 79698, USA)

  • Mazhar A. Siddiqi

    (College of Business, University of North Texas, USA)

Registered author(s):

    Most Initial Public Offerings (IPOs) feature share lockup agreements, which prohibit insiders and other pre-IPO shareholders from selling their shares for a specified period of time following IPO. We explore possible reasons why some IPO firms voluntarily agree to have a much longer lockup period than other firms. We find evidence that lockup agreements are used to control agency costs. Longer lockups are significantly related to inferior long-run returns and this relationship is stronger for firms that have less reputable underwriters. We find no evidence that lockup agreements are used to signal firm quality and we are unable to relate firm quality, as measured by long-run returns, to information asymmetry variables.

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    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

    Volume (Year): 15 (2012)
    Issue (Month): 03 ()
    Pages: 1250013-1-1250013-18

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    Handle: RePEc:wsi:rpbfmp:v:15:y:2012:i:03:p:1250013-1-1250013-18
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