The Role of Lockups in Initial Public Offerings


Journal Article

In a sample of 2,794 initial public offerings (IPOs), we test three potential explanations for the existence of IPO lockups: lockups serve as (i) a signal of firm quality, (ii) a commitment device to alleviate moral hazard problems, or (iii) a mechanism for under-writers to extract additional compensation from the issuing firm. Our results support the commitment hypothesis. Insiders of firms that are associated with greater potential for moral hazard lockup their shares for a longer period of time. Insiders of firms that have experienced larger excess returns, are backed by venture capitalists, or go public with high-quality underwriters are more likely to be released from the lockup restrictions.

Full Text

Duke Authors

Cited Authors

  • Brav, A; Gompers, PA

Published Date

  • January 1, 2003

Published In

Volume / Issue

  • 16 / 1

Start / End Page

  • 1 - 29

International Standard Serial Number (ISSN)

  • 0893-9454

Digital Object Identifier (DOI)

  • 10.1093/rfs/16.1.0001

Citation Source

  • Scopus