An Analysis of Lockups in REIT IPOs

Posted: 10 Aug 2011

See all articles by Hsuan‐Chi Chen

Hsuan‐Chi Chen

University of New Mexico - Anderson School of Management

Robert (Chi-Wing) Fok

University of Wisconsin - Parkside

Chiuling Lu

Yuan Ze University - Department of Finance

Date Written: August 10, 2011

Abstract

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

Chen, Hsuan-Chi and Fok, Robert (Chi-Wing) and Lu, Chiuling, An Analysis of Lockups in REIT IPOs (August 10, 2011). Journal of Real Estate Finance and Economics, Vol. 43, No. 3, 2011, Available at SSRN: https://ssrn.com/abstract=1907854

Hsuan-Chi Chen

University of New Mexico - Anderson School of Management ( email )

1924 Las Lomas NE
Albuquerque, NM 87131
United States

HOME PAGE: http://www.mgt.unm.edu/faculty/directoryArea.asp#FIN

Robert (Chi-Wing) Fok

University of Wisconsin - Parkside

900 Wood Road
P.O. Box 2000
Kenosha, WI 53141-2000
United States

Chiuling Lu (Contact Author)

Yuan Ze University - Department of Finance ( email )

Chung-Li, Taoyuan 320
Taiwan

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