Lockup expiration, insider selling and bid–ask spreads

Krishnamurti, Chandrasekhar; Thong, Tiong Yang

doi:10.1016/j.iref.2007.06.005

“…Studies that focus on the market microstructure effects of lockup expiration such as Cao, Field and Hanka (2004), Krishnamurti and Thong (2008) and Gao (2005) do not find evidence of increase in bid-ask spreads following lockup expiration. There is no evidence indicating an increase in information asymmetry following lockup expiration that necessitates an increase in the required rate of return.…”

Section: Introductionmentioning

confidence: 94%

Can Liquidity Shifts Explain the Lockup Expiration Effect in Stock Returns?

Krishnamurti

¹

,

Subrahmanyam

²

,

Thong

³

2010

SSRN Journal

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Several studies on the expiration of IPO lockups document a strong negative reaction even though the unlock event is devoid of any informational content. The empirical finding has remained a conundrum. In this paper, we find that changes in liquidity can account for the observed stock price reaction around lockup expiration. Specifically, firms which show improvement in liquidity subsequent to the unlock day experience positive abnormal returns in the post-expiration period, and vice versa. Another interesting conclusion that emerges from our research is that liquidity changes can predict future abnormal returns. Our results remain robust to the use of alternate procedures to characterize unexpected changes in liquidity. Can Liquidity Shifts Explain the Lockup Expiration Effect in Stock Returns? AbstractSeveral studies on the expiration of IPO lockups document a strong negative reaction even though the unlock event is devoid of any informational content. The empirical finding has remained a conundrum. In this paper, we find that changes in liquidity can account for the observed stock price reaction around lockup expiration. Specifically, firms which show improvement in liquidity subsequent to the unlock day experience positive abnormal returns in the post-expiration period, and vice versa. Another interesting conclusion that emerges from our research is that liquidity changes can predict future abnormal returns. Our results remain robust to the use of alternate procedures to characterize unexpected changes in liquidity.

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“…Studies that focus on the market microstructure effects of lockup expiration such as Cao, Field and Hanka (2004), Krishnamurti and Thong (2008) and Gao (2005) do not find evidence of increase in bid-ask spreads following lockup expiration. There is no evidence indicating an increase in information asymmetry following lockup expiration that necessitates an increase in the required rate of return.…”

Section: Introductionmentioning

confidence: 94%

“…Furthermore, they report the interesting finding that in cases where insiders disclose share sales spreads actually decline. Krishnamurti and Thong (2008) report that both insider selling and unwinding by venture capitalists in the aftermath of lockup expiration are associated with a decline in quoted and effective spreads. Furthermore, they attribute the decline in spreads to a decline in the adverse selection component of spreads.…”

Section: (C) Increase In Trading Cost Hypothesismentioning

confidence: 99%

Can Liquidity Shifts Explain the Lockup Expiration Effect in Stock Returns?

Krishnamurti

¹

,

Subrahmanyam

²

,

Thong

³

2009

SSRN Journal

Self Cite

0

View full text Add to dashboard Cite

Several studies on the expiration of IPO lockups document a strong negative reaction even though the unlock event is devoid of any informational content. The empirical finding has remained a conundrum. In this paper, we find that changes in liquidity can account for the observed stock price reaction around lockup expiration. Specifically, firms which show improvement in liquidity subsequent to the unlock day experience positive abnormal returns in the post-expiration period, and vice versa. Another interesting conclusion that emerges from our research is that liquidity changes can predict future abnormal returns. Our results remain robust to the use of alternate procedures to characterize unexpected changes in liquidity. Can Liquidity Shifts Explain the Lockup Expiration Effect in Stock Returns? AbstractSeveral studies on the expiration of IPO lockups document a strong negative reaction even though the unlock event is devoid of any informational content. The empirical finding has remained a conundrum. In this paper, we find that changes in liquidity can account for the observed stock price reaction around lockup expiration. Specifically, firms which show improvement in liquidity subsequent to the unlock day experience positive abnormal returns in the post-expiration period, and vice versa. Another interesting conclusion that emerges from our research is that liquidity changes can predict future abnormal returns. Our results remain robust to the use of alternate procedures to characterize unexpected changes in liquidity.

show abstract

“…Major issues discussed in the lockup literature notably relate to market liquidity impact of insider trading and EM practices around lockup expirations (Brau & McQueen, 2005;Cao et al, 2004;Krishnamurti & Thong, 2008). In the context of EM, the first expiration period constitutes the first wealth gaining opportunity for IPO firms by selling the maximum percentage of their restricted shares and hence this would motivate firms to inflate earnings accordingly (Wongsunwai, 2013).…”

Section: Share Moratorium or Lockupmentioning

confidence: 99%

The impact of initial public offering (IPO) attributes, firm-level characteristics and ownership on Malaysian IPO firms’ earnings management

Kalgo¹,

Nahar²,

Noordin³

2022

AAMJAF

4

0

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The paper investigates Malaysian Initial Public Offering (IPO) firms’ financial reporting behaviour from the specific perspective of their earnings management (EM) practices covering both real (REM) and accrual (AEM) techniques. It further examines the impact of unique IPO attributes, firm level characteristics and ownership structure on both EM practices contemporaneously. Using the established and commonly used EM models to measure both AEM and REM for IPO firms from 2002 to 2013, the results indicate that IPO firms engage in both EM strategies around the corporate event. It also shows that such strategies are not just opportunistically motivated but attributable to several unique IPO attributes, firm level characteristics and ownership variables. The paper adds to the existing body of knowledge on IPO in the specific emerging country context of Malaysia which evidence from prior studies are observably scant.

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Lockup expiration, insider selling and bid–ask spreads

Cited by 16 publications

References 23 publications

Can Liquidity Shifts Explain the Lockup Expiration Effect in Stock Returns?

Can Liquidity Shifts Explain the Lockup Expiration Effect in Stock Returns?

Can Liquidity Shifts Explain the Lockup Expiration Effect in Stock Returns?

The impact of initial public offering (IPO) attributes, firm-level characteristics and ownership on Malaysian IPO firms’ earnings management

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