Why Do Insiders Sell Shares Following IPO Lockups?

Chen, Hsuan‐Chi; Chen, Sheng‐Syan; Huang, Chia‐Wei

doi:10.1111/j.1755-053x.2012.01217.x

Cited by 22 publications

(5 citation statements)

References 62 publications

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“…To examine the relationship between consistent trading behavior and operating/financial market performance of OMR firms, we define PP (pure purchases) as OMR firms with NP equal to one, Mixed (mixed trades) as those with NP between −1 and 1, and PS (pure sales) as those with NP equal to negative one. These definitions are consistent with those used in Lee () and Chen et al ().…”

Section: Empirical Tests and Findingssupporting

confidence: 84%

Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements

Chen¹,

Chen²,

Huang³

et al. 2014

Business Fin & Account

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The long-run performance of equity securities subsequent to announcements of open market repurchases (OMR) remains a contentious topic. In this paper we propose the "dichotomous expectations hypothesis" which posits that insider trading following share repurchase announcements reveals private information concerning the future operating performance of announcing firms. In particular, insider abnormal purchases (abnormal sales) should predict an improvement (decline) in operating performance that leads to higher (lower) long-run stock returns. Our hypothesis offers a credible economic link between insider trading and subsequent long-run stock performance through the intervening variable of operating performance. The empirical results show consistency with this linkage.

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Section: Empirical Tests and Findingssupporting

confidence: 84%

Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements

Chen¹,

Chen²,

Huang³

et al. 2014

Business Fin & Account

Self Cite

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show abstract

“…The minimum lock‐up period, typically 90 days, provides a commitment to the market that insiders will not immediately cash out their shareholdings following the IPO (see Chen, Chen and Huang ).…”

mentioning

confidence: 99%

Rationale behind IPO Underpricing: Evidence from Asian REIT IPOs

Ooi

Mori

Wong

2018

Real Estate Economics

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This article examines the rationale behind IPO underpricing using a sample of REIT IPOs in Asia. Although the IPOs registered an average initial return of 3.08%, the issuers were able to sell the IPO shares above their fundamental values by timing the listings in periods when existing REIT stocks are traded at a premium to their net asset values (NAV). An IPO could therefore be underpriced and yet produce a net gain for the issuer. The issuers' net gain from IPO is, however, negatively related to long-run performance of REIT IPOs.

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“…Sletten et al (2018) find that IPO firms exhibit positive abnormal accruals in the quarter before and the quarter of the lockup expiration which subsequently reverse and that such reversals contribute to long-run IPO underperformance. Similarly, Chen et al (2012) find that IPO firms with abnormal net sales by top executives after lockup expiration exhibit poor subsequent threeyear stock performance. Taken together, we expect NGM disclosure to be unassociated with pre-lockup expiration stock returns but negatively associated with post-lockup expiration stock returns after the insider selling.…”

Section: High-tech Ipo Firmsmentioning

confidence: 90%

Non-GAAP measure disclosure and insider trading incentives in high-tech IPO firms

Liu

2021

ARJ

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Purpose This paper aims to investigate whether the non-generally accepted accounting principles (GAAP) performance measures (NGMs) disclosure by high-tech initial public offering (IPO) firms signal firms’ efforts to maintain relatively high stock price levels before the expiration of the lock-up period to benefit insider selling. Design/methodology/approach The authors perform ordinary least squares and logit regressions using financial statement data and hand collected data on NGM disclosures for high-tech firms during the IPO process. Findings The authors find that the top executives of high-tech IPO firms with NGM disclosures are significantly more likely to sell and sell significantly more insider shares at the lock-up expiration than those of high-tech IPO firms without NGM disclosures. At the same time, while high-tech NGM firms have stock returns similar to their counterparts without NGMs for the period before the lock-up expiration, their stock returns are substantially lower after insider selling following the lock-up expiration. Practical implications By documenting the negative association between NGM disclosures and post-lockup expiration stock performance, the study highlights managerial deliberate optimism about the firm’s prospects which may not materialize. Hence, investors should take the NGM disclosures with a grain of salt. Originality/value This paper fills a notable void in the non-GAAP reporting literature by documenting a statistically and economically significant positive association between managerial equity trading incentives and NGM disclosures by high-tech IPO firms.

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Why Do Insiders Sell Shares Following IPO Lockups?

Cited by 22 publications

References 62 publications

Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements

Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements

Rationale behind IPO Underpricing: Evidence from Asian REIT IPOs

Non-GAAP measure disclosure and insider trading incentives in high-tech IPO firms

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