The influence of lock-up provisions on IPO initial returns: Evidence from an emerging market
A lock-up agreement ensures that major shareholders retain significant economic interest in the companies following the IPOs. Rationally, these insiders will not adhere to the lock-up agreement unless the benefits of doing so can more than offset the costs. Therefore, in an environment characterized...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Elsevier B.V.
2014
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| Subjects: | |
| Online Access: | http://repo.uum.edu.my/18858/1/ES%2038%202014%20487-501.pdf http://repo.uum.edu.my/18858/ http://doi.org/10.1016/j.ecosys.2014.03.003 |
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| Institution: | Universiti Utara Malaysia |
| Language: | English |
| Summary: | A lock-up agreement ensures that major shareholders retain significant economic interest in the companies following the IPOs. Rationally, these insiders will not adhere to the lock-up agreement unless the benefits of doing so can more than offset the costs. Therefore, in an environment characterized by high information asymmetry, a lock-up agreement can serve as an effective mechanism to signal the risk or quality of firms. This article examines whether the lock-up ratio and lock-up period affect the initial returns, using a sample of 384 IPOs listed on Bursa Malaysia between 2000 and 2012. The results of the cross-sectional multiple regression show that the lock-up period is significantly positive in explaining IPO initial returns, but the lock-up ratio is not. The findings provide new insights for testing the signaling content of lock-up provisions, particularly in a setting characterized by high information asymmetry. |
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