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

Mohd Rashid, Rasidah and Abdul Rahim, Ruzita and Yong, Othman (2014) The influence of lock-up provisions on IPO initial returns: Evidence from an emerging market. Economic Systems, 38 (4). pp. 487-501. ISSN 0939-3625

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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.

Item Type: Article
Uncontrolled Keywords: Lockup agreement, Initial returns, Malaysia IPO market, Signaling content
Subjects: H Social Sciences > HC Economic History and Conditions
Divisions: School of Economics, Finance & Banking
Depositing User: Mdm. Rasidah Mohd Rashid
Date Deposited: 11 Oct 2016 06:34
Last Modified: 11 Oct 2016 06:34

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