The influence of lock-up provisions on IPO initial returns: Evidence from an emerging market

Rasidah Mohd Rashid, Ruzita Abdul Rahim, Othman Yong

Research output: Contribution to journalArticle

20 Citations (Scopus)

Abstract

A lock-up agreement ensures that major shareholders retain significant economic interest in the companies following the IPOs. Rationally, these insiders will not adhere to the lock-up agreement unless the benefits of doing so can more than offset the costs. Therefore, in an environment characterized by high information asymmetry, a lock-up agreement can serve as an effective mechanism to signal the risk or quality of firms. This article examines whether the lock-up ratio and lock-up period affect the initial returns, using a sample of 384 IPOs listed on Bursa Malaysia between 2000 and 2012. The results of the cross-sectional multiple regression show that the lock-up period is significantly positive in explaining IPO initial returns, but the lock-up ratio is not. The findings provide new insights for testing the signaling content of lock-up provisions, particularly in a setting characterized by high information asymmetry.

Original languageEnglish
Pages (from-to)487-501
Number of pages15
JournalEconomic Systems
Volume38
Issue number4
DOIs
Publication statusPublished - 2014

Fingerprint

Emerging markets
Information asymmetry
Testing
Insider
Malaysia
Multiple regression
Shareholders
Costs
Economics

Keywords

  • Initial returns
  • Lock-up agreement
  • Malaysia IPO market
  • Signaling content

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

The influence of lock-up provisions on IPO initial returns : Evidence from an emerging market. / Mohd Rashid, Rasidah; Abdul Rahim, Ruzita; Yong, Othman.

In: Economic Systems, Vol. 38, No. 4, 2014, p. 487-501.

Research output: Contribution to journalArticle

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