The Expiration of IPO Share Lockups
44 Pages Posted: 14 Feb 2000
Date Written: January 14, 2000
We examine 3,217 share lockup agreements that prevent insiders from selling shares immediately after the IPO. In the week the lockup agreements expire, we find a permanent 40 percent increase in average trading volume, and a statistically prominent cumulative abnormal return of -1.8 percent. The abnormal return is not quickly reversed, is stable over our ten year sample period, and is not due to changes in the proportion of trades at the bid price. The abnormal return is much more pronounced when the firm is venture financed, and we find that venture funds sell more aggressively than other pre-IPO shareholders. Prior to the scheduled expiration day, we find that six percent of lockup agreements are abrogated by substantial insider share sales.
JEL Classification: G00, G24, G3
Suggested Citation: Suggested Citation