Abstract

http://ssrn.com/abstract=1933995
 
 

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Lockup Agreements in Seasoned Equity Offerings: Evidence of Optimal Contracting


Jonathan M. Karpoff


University of Washington - Michael G. Foster School of Business

Gemma Lee


Kyung Hee University

Ronald W. Masulis


University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN)

February 18, 2012

Journal of Financial Economics (JFE), Forthcoming

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

Accepted Paper Series


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Date posted: October 1, 2011 ; Last revised: September 30, 2013

Suggested Citation

Karpoff, Jonathan M. and Lee, Gemma and Masulis, Ronald W., Lockup Agreements in Seasoned Equity Offerings: Evidence of Optimal Contracting (February 18, 2012). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: http://ssrn.com/abstract=1933995 or http://dx.doi.org/10.2139/ssrn.1933995

Contact Information

Jonathan M. Karpoff (Contact Author)
University of Washington - Michael G. Foster School of Business ( email )
Box 353200
Seattle, WA 98195-3200
United States
206-685-4954 (Phone)
206-221-6856 (Fax)
Gemma Lee
Kyung Hee University ( email )
1732 Deogyung-daero
Yongin-si, Gyeonggi-Do 446-701
Korea, Republic of (South Korea)
82-31-201-2314 (Phone)
82-31-201-2281 (Fax)
Ronald W. Masulis
University of New South Wales - Australian School of Business ( email )
Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

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