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Initial public offering (IPO) lockup agreements prevent insider sale of shares for specified periods of time (often 180 days). This study investigates share price reactions at and around the time the lockup agreements expire. Results indicate statistically significant negative abnormal returns in the event window surrounding the expiration date. The results are consistent with informational asymmetries and decreasing incentive alignment between insiders and general shareholders. In addition, multivariate analysis identifies several variables that help explain these abnormal returns.

The purpose of the research is to study how Chief Executive Officer’s (CEO’s) ownership, CEO’s structural and expertise power and underwriters’ reputation affect the initial public offering (IPO) lockup period.

The study uses the multivariate regression method to test the hypothesis on a sample of 1,071 US IPOs, which comprise 80 per cent of the total population of IPOs over the 1998-2002 period.

It was found that CEO equity ownership had a direct positive impact and two indicators of CEO positional power (CEO duality, founder status) and underwriter reputation had a direct negative impact on the length of the lockup period that results from IPO negotiations between the issuing firm and the underwriter. It was also found that underwriter reputation negatively moderates the impact of equity ownership (likely due to a substitution effect) and positively moderates the impact of CEO duality on lockup period length (by offsetting the impact of CEO positional power).

Previous studies have exclusively studied the affect of economic factors on IPO lockup. This paper extends the extant literature by studying the insider’s characteristics like CEO’s power and underwriter’s reputation on IPO lockup periods.

Conventional wisdom says that the price reduction stocks experience at expiration of the initial public offering (IPO) lockup period is due to relaxation of selling constraints. Findings from more recent literature question this explanation. The purpose of this paper is to examine a different cause for this price drop, IPO overvaluation.

Using the IPO overvaluation measures of Purnanandam and Swaminathan (2004), the authors examine IPO lockup period stock return differences between stocks in the highest and lowest overvaluation quintiles.

The authors show that the IPO lockup period price reduction is strongly related to overvaluation. Zero-investment portfolios long in the lowest overvaluation quintile and short in the highest overvaluation quintile of IPO firms have positive significant returns.

IPO investors can use the technique to identify firms likely to underperform in the IPO lockup period, potentially avoiding bad investments.

This is the first study to link IPO lockup period stock returns to IPO overvaluation, providing evidence on the impact of both overvaluation and short-selling constraints on stock returns in the IPO lockup period.

The purpose of this paper is to examine the relationship between IPO lockups and founder-CEOs’ compensation and incentives in newly public firms. The paper argues that existence and length of lockup agreements are affected by bargaining power of founders, which will consequently influence the determination of their compensation contracts.

Multivariate tests are constructed to examine the relationship between IPO lockups and executive compensation. OLS, fixed-effect panel data model, and the Heckman two-stage model are all utilized to conduct the tests.

The study finds that lockup existence and lockup length are negatively related to founder-CEOs’ total compensation and positively related to founder-CEOs’ equity incentives. The results hold after controlling for the endogenous decision to sign a lockup agreement at the IPO.

The paper's results suggest that the power of founders and other insiders is a crucial factor in the lockup determination process besides economic factors identified in previous studies. The paper's results also echo the political power theory in the management literature which suggests that an organization's decision making is heavily influenced by relative power of organizational members and reflects their preference.

The paper raises a new explanation for the determinant of IPO lockups that supplements the extant theories. The paper argues that existence and length of lockup agreements could be affected by bargaining power of insiders.

This study aims to examine the changes in equity guidelines and initial returns in the Malaysian initial public offering (IPO) market.

The study uses cross-sectional data over 16 years from 2000 to 2016. It uses ordinary least squares for the baseline model and incorporates an interaction term, quantile regression, quadratic term, break test and logit regression model for further analysis.

The results support the propositions that lockup provisions signal commitment and demand increase initial returns. The revision in the Bumiputera equity requirement means that issuers no longer need to discount offer prices to entice investors. Finally, the revised Sharīʿah-compliance screening requirement ensures that stocks are better in quality and more transparent, leading to a higher demand that drives prices upwards.

This study’s findings provide insights into how issuers can secure good subscriptions. Besides, policymakers should ensure that firms disclose the required information in their prospectuses.

This study adds to the body of knowledge on whether and how the regulatory requirements affect IPO initial returns.

Prior research on earnings management largely assumes that newly public firms manage earnings opportunistically around IPOs. However, only a few studies have empirically examined the real motives behind newly public firms’ earnings management. The purpose of this paper is to examine the impact of ownership dilution on earnings management among IPO firms. The authors chose the setting of security offerings in an emerging market, which is characterised by unique ownership structure, to examine the possible incentive of owners or pre-IPO shareholders to engage in earnings management.

The study employs accrual and real transactions measures to check the presence of earnings management among 409 IPO firms from India during the period 2000‒2018. Subsequently, using ordinary least squares regression models with heteroscedasticity-robust standard errors, this paper examines the relationship between earnings management and selling or dilution incentives of pre-IPO shareholders.

The study finds that the degree of earnings manipulation by issuer firms is positively associated with the ownership dilution at the time of IPO as well as around lockup expiration.

The findings of this study will help the investors and regulators to understand the practice of earnings management among IPO firms and how it is linked to the ownership dilution of pre-IPO shareholders.

The paper contributes to the limited stream of research that investigates the motives of earnings management among IPO firms. It empirically establishes an association between the selling incentive of pre-IPO shareholders and earnings management.

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.

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.

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.

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.

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.

IPO lockup is defined as the restricted period during which certain insiders are prohibited from selling their holdings in the open market. Usually, the lead underwriter imposes the restriction, and the customary restriction period lasts for about 6 months. Different theories have been extended to predict the stock price behavior around the expiration day of IPO‐lockup. In this study, we will investigate whether the stock price behavior around the expiration day of IPO lockup is different for ‘Hot’ and ‘Cold’ IPOs. We hypothesize that the stock prices of ‘Hot’ IPOs, in terms of average returns, are less affected by the unlocking of a large volume of shares. On the other hand, for ‘Cold’ IPOs, investors, in particular, venture capitalists will have a tendency to dispose of their shares in order to preempt further decline in their wealth, and as a result we anticipate a significant decline in stock prices for Cold IPOs. Our initial results show that on the lockup expiration day, the market adjusted returns for all four categories of IPOs decline by more 1 percent however, only the decline for Hot IPOS is statistically significant. The results are robust even after controlling for various specifications of the market index.

The purpose of this study is to examine the influence of underwriter reputation on the valuation of Malaysian initial public offerings (IPOs).

This study employed cross-sectional multiple regression models to analyse the relationship between underwriter reputation and IPO valuation that included 466 IPOs listed on Bursa Malaysia from 2000 to 2017.

The results revealed that underwriter reputation had a significant negative association with IPO valuation. Firms that engaged the services of reputable underwriters had their IPO offer prices set lower than the intrinsic values during the listing. After incorporating firms' size, this study found a positive relationship between underwriter reputation and IPO valuation. Big firms (high quality) hired reputable underwriters for certification purposes as issuers were aware that the cost of hiring a reputable underwriter would be justified by increased transparency after listing. Therefore, firms that engaged reputable underwriters had approximately fair values since issuers assumed that the price would be close to the intrinsic value following enhanced transparency post-listing.

Future studies should focus on other non-financial factors, such as auditor reputation.

The present study provides new insights into the certification role of underwriters in valuing IPOs in the Malaysian market.

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.

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.

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.

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.

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.