Why Do Directors Change Their Ownership During IPO Lockup Arrangements?

45 Pages Posted: 14 May 2014

See all articles by Meziane Lasfer

Meziane Lasfer

Cass Business School, City, University of London

Hafiz Hoque

University of York; City University London - Sir John Cass Business School

Date Written: May 14, 2014

Abstract

We test a number of hypotheses to assess changes in director ownership during lockup periods. We find that these transactions are additional signalling devices. Our results also imply that they are contractual arrangements between directors and underwriters, as directors increase their holdings after significant price decline, in line with the price support hypothesis, but they decrease their ownership after price run-up, consistent with the early lockup releases hypothesis. Stock prices decline when directors decrease their holdings, like the seasoned firms. Interestingly, stock prices decline significantly after ownership increases. The overall effect of director purchases is different as compared to seasoned firms, and it reduces the heavy decline in share prices for those IPOs. Our results could imply that the valuation uncertainty of IPOs makes the precision of directors’ information content weak and their profitability low.

Keywords: Initial public offering, Lockup agreements, Director ownership, Information asymmetry, London Stock Exchange

JEL Classification: G12, G14, G24, G32

Suggested Citation

Lasfer, Meziane and Hoque, Hafiz, Why Do Directors Change Their Ownership During IPO Lockup Arrangements? (May 14, 2014). Available at SSRN: https://ssrn.com/abstract=2436920 or http://dx.doi.org/10.2139/ssrn.2436920

Meziane Lasfer (Contact Author)

Cass Business School, City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZ
Great Britain
+44 20 7040 8634 (Phone)
+44 20 7040 8881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/m.a.lasfer/

Hafiz Hoque

University of York ( email )

The York Management School
York, YO10 5GD
United Kingdom
+44 (0) 7515890949 (Phone)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44(0)7515890949 (Phone)
+44(0)2070408546 (Fax)

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