The Choice and Role of Lockups in IPOs: Evidence from Heterogeneous Lockup Agreements

Hoque, Hafiz

doi:10.1111/j.1468-0416.2011.00169.x

Cited by 9 publications

(5 citation statements)

References 41 publications

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“…Third, lockups for LSE IPOs are quite diverse and heterogeneous particularly in terms of their length. For example, Espenlaub et al (2001) report average lockup length of 561 days whilst Hoque (2011) reports variation from 383 to 714 days for UK IPOs. This is in sharp contrast to the US findings of standardised lockups of 180 days (Field and Hanka, 2001;Brav and Gompers, 2003;Brau et al, 2004;Yung and Zender, 2010).…”

Section: Introductionmentioning

confidence: 99%

“…Lockups prevent firms’ insiders from selling whole or some percentage of their equity during post‐IPO periods. Existing literature shows that the majority of US and UK firms go public with voluntary lockups (Espenlaub et al., ; Field and Hanka, ; Mohan and Chen, ; Hoque, ) and tends to focus on roles of lockups and their price effect around expiry dates (Brav and Gompers, ; Brau et al., ; Arthurs et al., ; Yung and Zender, ). Although IPOs’ survival has been studied before (Jain and Kini, , ), the association of the survival and characteristics of lockups has not received attention in the past .…”

Section: Introductionmentioning

confidence: 99%

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Lockup Agreements and Survival of UK IPOs

Ahmad¹,

Jelic

2014

Business Fin & Account

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This paper examines the role of lockup agreements on the survival of 580 UK Initial Public Offerings (IPOs) during the period of 1990-2011. Our accelerated failure time (AFT) survival model shows a statistically and economically significant effect of lockup length on the post-IPO survival. A 12 month increase in median lockup period increases the (median) survival time by 27%. Furthermore, the failure rates for IPOs with longer lockups are consistently lower than the failure rates for IPOs with shorter lockups regardless of delisting reasons. The results are robust to choice of different survival estimation models, heterogeneity, clustering, and alternative specification of variables. Our results highlight the importance of lockup characteristics on the subsequent survival of newly listed firms and inform recent debate regarding alleged short-termism in the UK equity market. (Paper

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Lockup Agreements and Survival of UK IPOs

Ahmad¹,

Jelic

2014

Business Fin & Account

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“…In this case, establishing more extended lock-up periods represents a sign of management's commitment to offset the high moral hazard. Hoque (2011) investigated potential explanations for choosing the type of lock-up contract in IPOs in the United Kingdom, where the extension of the lock-up term has a heterogeneous distribution, ranging from 85 days to 1,650 days. Among his results, he found that the presence of venture capital funds and prestigious underwriters confer a kind of certification on the firm's quality, allowing for more flexible and less restricted lock-up contracts, corroborating the results found by Brav and Gompers (2003).…”

Section: Theoretical Background and Formulation Of Hypothesesmentioning

confidence: 99%

“…Evidence of the impact of lock-up expiration differs in terms of magnitude and signal in different countries. Hoque (2011) 2012) investigated the lockup phenomenon in the Middle East and North Africa (MENA). They found that the greater the length of the lock-up period, the greater the price drop, and that this price drop is sharp for family businesses.…”

Section: Theoretical Background and Formulation Of Hypothesesmentioning

confidence: 99%

Behavior of stock prices due to the lock-up period expiration in IPOs and follow-ons

Talans

Minardi

2021

Rev. contab. finanç.

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The objective of this study was to verify the effects of the lock-up expiration on the behavior of prices and volumes in IPOs and follow-ons in the Brazilian market and to identify factors that may explain the existence and magnitude of abnormal returns. Few studies were found to investigate this phenomenon in Brazil, which were limited to the analysis of IPOs without examining the effect on follow-ons and the construction of abnormal accumulated returns compared to the Ibovespa, instead of benchmarks appropriate to each stock's risk. Lock-up clauses exist to mitigate the problem of information asymmetry in public offers but expose investors to the risk of a price drop after its expiration. Understanding the magnitude of this impact is essential for investors in the stock market. Through this article's analysis, investors will be able to estimate the magnitude of the price variation around the lock-up expiration, what factors explain the returns, and whether there are indications of short selling limitations. The event study method was applied, comparing returns to the Ibovespa and an individual reference portfolio composed of similar companies. Database: 313 offers that occurred on the Brazilian stock market between 2004 and 2019. Evidence of volume increase was found around the expiry of lock-up in IPOs, but the price drop was verified only in companies with private equity funds as shareholders. In follow-ons, in which the asymmetry of information about the issuer is less pronounced, the opposite situation was verified. There are several extensions and lock-up formats worldwide, which provide different impacts on volume and price. This article contributes to the literature when analyzing this event in Brazil and extending the analysis to follow-ons. A possible interpretation for the phenomenon is the restrictions on short-selling in the Brazilian market.

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“…Nonetheless, the lock-ups have varied periods (Espenlaub et al, 2001;Goergen et al, 2006;Ahmad and Jelic, 2014), and the short-and long-term information disclosures will result in multiple transparency levels because negative information is typically only disclosed in the long term. Hence, more stringent and longer lock-ups are needed to ensure higher degrees of information asymmetry so that greater disclosure is possible (Goergen et al, 2006;Hoque, 2011). A similar condition applies to offer price.…”

Section: Literature Reviewmentioning

confidence: 99%

Sponsor ownership and IPO initial return: evidence from Pakistan stock exchange

Mehmood

Mohd‐Rashid

Ahmad

et al. 2021

PAR

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Purpose The purpose of this paper was to examine whether or not the sponsor lock-up ratio, lock-up period, regulation changes and interaction variable (oversubscription [OSR]) affected initial public offering (IPO) initial return. Design/methodology/approach A complete sample of 111 listed IPOs in Pakistan stock exchange from 1996 to 2018 was incorporated. Based on the cross-section data, this paper estimated using ordinary least square and quantile least square for robustness. In addition to that, this paper estimated the data using stepwise least square to inspect the signalling aspect of the lock-up ratio, lock-up period and regulation changes on IPO initial return. Findings This study showed that the lock-up ratio, lock-up period and regulatory changes had a positive impact on the IPO’s initial return. Furthermore, the assertion of interaction variable (regulation changes × OSR) and (lock-up period × OSR) was a negatively significant factor in influencing the IPO’s initial return. The results of this paper were robust to endogeneity bias. Practical implications The finding of this study proposed that sponsors of IPOs can be a strong signal of risk or quality, which was consistent with the signalling theory prediction. Concurrently, investors must be aware of the total proportions of lock-up ratio so that they can estimate the chances of getting the highest initial return on IPOs. From the regulators’ point of view, it is suggested that the lock-up ratio and the lock-up period should be determined with a deeper understanding and incorporated into the equity guidelines as it is evident that these factors are priced by the market. Originality/value Studies on the effect of sponsors have always been centred on well-recognized firms. Therefore, using the IPO samples listed in Pakistan, this paper contributes to the IPO literature by investigating the lock-up ratio of the sponsor, the lock-up period and the regulatory changes to the initial IPO return. Additionally, OSR has been introduced as an interaction variable among the sponsors’ lock-up period and regulations changes to explain the ongoing IPO initial return phenomenon.

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The Choice and Role of Lockups in IPOs: Evidence from Heterogeneous Lockup Agreements

Cited by 9 publications

References 41 publications

Lockup Agreements and Survival of UK IPOs

Lockup Agreements and Survival of UK IPOs

Behavior of stock prices due to the lock-up period expiration in IPOs and follow-ons

Sponsor ownership and IPO initial return: evidence from Pakistan stock exchange

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