Lock-In Agreements in Venture Capital-Backed UK Ipos
73 Pages Posted: 17 Sep 2003
Date Written: September 2003
This paper examines the impact of venture-capital (VC) backing on the characteristics of voluntary lock-in agreements entered into by the existing shareholders of UK IPOs, and on the abnormal returns around the expiry of the directors' lock-in agreements. Overall, we find that venture-capital backing acts as a complement rather than a substitute for lock-in contracts. We also examine the share-price performance of IPOs with and without VC backing around the time of the expiry of the lock-in agreements. We find that the cumulative average abnormal returns for the VC-backed stocks are lower for most of the short windows around the expiry date. We also examine some UK companies in more detail. Different motivations for the lock-in agreements are uncovered such as the founder's commitment not to exit the company (as he did in an earlier venture which subsequently failed) in one case, and the poor pre-IPO earnings performance in another case.
Keywords: Initial public offerings, lock-in agreements, high-tech firms, venture capital
JEL Classification: G24, G34
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