Voluntary lock-up provisions and performance of IPOs

Effects of information asymmetry

Rasidah Mohd-Rashid, Ruzita Abdul Rahim, Norliza Che-Yahya, Ahmad Hakimi Tajuddin

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

A lock-up provision restricts insiders from selling or disposing of a certain portion of their shares for a prescribed period. In Malaysia, most firms usually lock-up a higher portion of their shareholding than what is legally required. Despite allegations that mandatory lock-up provision results in a loss of its signaling property, the presence of the voluntary element in its actual conduct suggests that the lock-up could still serve as an effective signaling mechanism for issuers. This study postulates that a higher voluntary lock-up ratio signals the commitment of major shareholders to overcome the potential of moral hazard issues. Consequently, investors would be attracted to subscribe to IPOs once the risks were less evident and higher returns could still be expected. This study employs a data set from a sample of 373 IPOs listed on Bursa Malaysia from 2000 to 2012 to examine the impact of voluntary lock-up ratio on the initial returns of IPOs in the presence of information asymmetry. The findings demonstrate that voluntary lock-up ratio is significantly positive in influencing initial returns. Further analysis reveals that voluntary lock-up ratio is more consistent with signaling risk than with the quality of IPOs.

Original languageEnglish
Pages (from-to)1-24
Number of pages24
JournalJournal of Economic Cooperation and Development
Volume38
Issue number4
Publication statusPublished - 1 Jan 2017

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asymmetry
Malaysia
performance
shareholder
selling
investor
commitment
firm
Asymmetry of information

Keywords

  • Initial returns
  • IPOs
  • Quantile
  • Signaling theory
  • Voluntary lock-up ratio

ASJC Scopus subject areas

  • Business and International Management
  • Economics and Econometrics
  • Political Science and International Relations

Cite this

Voluntary lock-up provisions and performance of IPOs : Effects of information asymmetry. / Mohd-Rashid, Rasidah; Abdul Rahim, Ruzita; Che-Yahya, Norliza; Tajuddin, Ahmad Hakimi.

In: Journal of Economic Cooperation and Development, Vol. 38, No. 4, 01.01.2017, p. 1-24.

Research output: Contribution to journalArticle

Mohd-Rashid, Rasidah ; Abdul Rahim, Ruzita ; Che-Yahya, Norliza ; Tajuddin, Ahmad Hakimi. / Voluntary lock-up provisions and performance of IPOs : Effects of information asymmetry. In: Journal of Economic Cooperation and Development. 2017 ; Vol. 38, No. 4. pp. 1-24.
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