Insider Trading Subsequent to Initial Public Offerings: Evidence from Expirations of Lock-Up Provisions

53 Pages Posted: 8 Feb 2000

See all articles by Alon Brav

Alon Brav

Duke University - Fuqua School of Business; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Paul A. Gompers

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Abstract

This paper explores the role of investment bankers and lock-up provisions in the market for new equity issues. In a sample of 1,948 IPOs, we find support for the notion that lock-ups serve as commitment mechanisms at the time of the IPO. Insiders of firms that are associated with greater informational asymmetries lock-up their shares for a longer period of time. We also find that underpricing is higher for firms that lock-up their shares for a longer period of time or lock-up a larger fraction of their shares. The average abnormal return at lock-up expiration is -1.2% and is larger for firms that lock-up a greater fraction of their shares and firms that are backed by venture capitalists. This price drop is inconsistent with rational expectations on the part of investors. Finally, we find that earnings forecasts made by both affiliated and unaffiliated analysts are more optimistic around lock-up expiration.

JEL Classification: G14, G24, G30, G32

Suggested Citation

Brav, Alon and Gompers, Paul A., Insider Trading Subsequent to Initial Public Offerings: Evidence from Expirations of Lock-Up Provisions. Available at SSRN: https://ssrn.com/abstract=204094 or http://dx.doi.org/10.2139/ssrn.204094

Alon Brav (Contact Author)

Duke University - Fuqua School of Business ( email )

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European Corporate Governance Institute (ECGI) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Paul A. Gompers

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6297 (Phone)
617-496-8443 (Fax)

Harvard University - Entrepreneurial Management Unit ( email )

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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