Moderating Effect of Information Asymmetry on the Signalling Role of IPO Lockup Provision

Norliza Che Yahya, Ruzita Abdul Rahim

Research output: Contribution to journalArticle

Abstract

This article examines the moderating effect of information asymmetry on the relationship between parameters of lockup provision and flipping activity of Malaysian initial public offerings (IPOs). While the main purpose of lockup provision is to promote commitment of major shareholders for the well-being of the IPO issuing companies at least throughout the lockup period, its role could also extend as a signalling device. Information asymmetry is prevalent in the context of IPOs because information on the issuing firms is normally very limited that the evaluation of the firms’ true value becomes difficult. This study postulates that the lockup provision has a greater influence on flipping activity in higher information asymmetry companies than in lower ones. Using data from 370 Malaysian IPOs issued from January 2000 to December 2012, the results of the multiple regression analyses show that both lockup ratio and lockup period have significantly negative impacts on flipping activities. Since lockup period is uniformly longer (1 year) prior to the 2008 Equity Guidelines revision, the results imply that investors have a greater tendency to flip during the post-2008 revision period when major shareholders are perceived to be less strongly accounted for their firms’ performance. The results also show that information asymmetry moderates the negative relationship between lockup provision and flipping activity, specifically, in regard to lockup period.

Original languageEnglish
JournalGlobal Business Review
DOIs
Publication statusPublished - 1 Jan 2019

Fingerprint

Initial public offerings
Moderating effect
Asymmetry of information
Information asymmetry
Shareholders
Investors
Multiple regression
Evaluation
Firm performance
Well-being
Equity

Keywords

  • flipping activity
  • Information asymmetry
  • lockup period
  • lockup provision
  • lockup ratio
  • Malaysian IPOs

ASJC Scopus subject areas

  • Business and International Management

Cite this

Moderating Effect of Information Asymmetry on the Signalling Role of IPO Lockup Provision. / Yahya, Norliza Che; Abdul Rahim, Ruzita.

In: Global Business Review, 01.01.2019.

Research output: Contribution to journalArticle

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