An Analysis of Lockups in REIT IPOs
Posted: 10 Aug 2011
Date Written: August 10, 2011
We analyze how the unique characteristics of real estate invest trusts (REITs) affect IPO lockup agreements from 1980 to 2006. The findings show that, unlike industrial IPOs, lockup periods for REIT IPOs do not cluster at 180 days, tend to cover longer periods, and vary over time. Our results support the commitment device hypothesis instead of the signaling hypothesis. That is, REIT managers tend to use lockup agreements to alleviate moral hazard problems and protect post-IPO investors rather than to send signals to investors. Finally, contrary to previous studies, we find no significant negative abnormal returns around the unlock date for the whole sample. The lack of aggressive sales by insiders and the fact that REITs are not backed by venture capitalists can explain our finding.
Keywords: Real estate investment trust, Lockup, Initial public offering, Signaling hypothesis, Commitment device, Moral hazard
JEL Classification: G11, G21
Suggested Citation: Suggested Citation