The Role of Lockups in Stock Mergers

55 Pages Posted: 16 Jun 2021 Last revised: 18 Jan 2023

See all articles by Zhong Chen

Zhong Chen

King's Business School, King's College London

Yi Liu

King’s College London

Stefano Rossi

Bocconi University; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: July 24, 2022


We document the frequent use of stock lockup agreements in mergers and acquisitions (M&As) paid in stock and examine the corporate determinants and consequences of lockups’ use and duration. Lockup agreements prohibit target shareholders from selling shares issued by the acquirer as means of payment for a pre-specified period. We find empirical support for the hypothesis that target shareholders agree to lockups to pre-commit to hold on to the acquirer’s stock if they believe the merger’s long-term fundamentals are strong. Consistent with our hypothesis, lockups come with larger acquirer announcement returns, particularly when acquirer valuations are high; ex-ante, lockups adoption likelihood increases with acquirers’ valuation. Lockups also come with higher deal completion likelihood; shorter merger negotiations; higher long-term operating performance. We conclude the market interprets lockups as a signal of strong fundamentals, particularly when acquirers’ valuations are high.

Keywords: Lockups, mergers and acquisitions, stock deals, equity valuation

JEL Classification: G32

Suggested Citation

Chen, Zhong and Liu, Yi and Rossi, Stefano, The Role of Lockups in Stock Mergers (July 24, 2022). Available at SSRN: or

Zhong Chen

King's Business School, King's College London ( email )

Bush House
London, WC2B 4BG
United Kingdom

Yi Liu

King’s College London ( email )

London, England WC2R 2LS
United Kingdom

Stefano Rossi (Contact Author)

Bocconi University ( email )

Via Roentgen 1
Milano, MI 20136

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

European Corporate Governance Institute (ECGI) ( email )

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

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