Why Do Insiders Sell Shares Following IPO Lockups?

Financial Management, Forthcoming

60 Pages Posted: 15 Jun 2012

See all articles by Hsuan‐Chi Chen

Hsuan‐Chi Chen

University of New Mexico - Anderson School of Management

Sheng‐Syan Chen

National Taiwan University - Department of Finance

Chia‐Wei Huang

Yuan Ze University

Date Written: June 7, 2012

Abstract

We examine the long run stock performance of IPO firms following lockup expiration when insiders are allowed to release their shares from the perspectives of two hypotheses. The portfolio diversification hypothesis notes that corporate insiders may wish to diversify their portfolios and sell their shares without conveying material information by their actions. Accordingly, this hypothesis predicts that insider selling does not have predictive power for the subsequent IPO long run performance following lockup expiration. The informative selling hypothesis posits that insider sales, particularly sales by senior corporate insiders, will convey unfavorable signals to investors, and that IPO firms with abnormal net post-lockup insider sales exhibit poor long run performance. Our results suggest that non-senior executive insider sales are driven more by diversification, while senior executive sales are largely consistent with the informative selling hypothesis.

Suggested Citation

Chen, Hsuan-Chi and Chen, Sheng-Syan and Huang, Chia-Wei, Why Do Insiders Sell Shares Following IPO Lockups? (June 7, 2012). Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2084812

Hsuan-Chi Chen (Contact Author)

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

Sheng-Syan Chen

National Taiwan University - Department of Finance ( email )

College of Management
50 Lane 144, Section 4
Taipei 32026, Taiwan
China
+886 2 3366 1083 (Phone)

Chia-Wei Huang

Yuan Ze University ( email )

135, Far-East Rd., Chung-Li
Taoyuan, ROC
Taiwan

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
234
Abstract Views
1,833
rank
167,499
PlumX Metrics