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Lockup Agreements in Seasoned Equity Offerings: Evidence of Optimal ContractingJonathan M. KarpoffUniversity of Washington - Michael G. Foster School of Business Gemma LeeSeton Hall University - W. Paul Stillman School of Business Ronald W. MasulisUniversity of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN) February 18, 2012 Abstract: We document the frequent use of lockup agreements in seasoned equity offerings (SEOs), and examine the determinants of their use, duration, and early release. From 1996 through 2006, 93.8% of all SEOs included lockups, which is comparable to the 96.6% lockup rate for IPOs during the same period. The likelihood of an SEO lockup and its duration both are positively related to the degree of information asymmetry between insiders and outside investors. Lockups tend to be released early when share prices increase after the SEO. These results indicate that lockups help to guarantee the SEO’s quality by guarding against opportunistic selling by insiders, particularly when the opportunity for mispricing is large. That is, lockups represent a contracting solution to economize on the asymmetric information and agency problems that plague equity issues.
Number of Pages in PDF File: 76 Keywords: seasoned equity offerings, lockups, information asymmetry JEL Classification: G32 working papers seriesDate posted: October 1, 2011 ; Last revised: October 8, 2012Suggested CitationContact Information
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