Lockups Revisited

Posted: 25 Aug 2004

See all articles by James C. Brau

James C. Brau

Brigham Young University

Val E. Lambson

Brigham Young University - Department of Economics

Grant Richard McQueen

Brigham Young University - Department of Business Management

Abstract

Lockups are agreements by insiders of stock-issuing firms to abstain from selling shares for a specified period of time after the issue. Brav and Gompers (2003) suggests that lockups are a bonding solution to a moral hazard problem and not a signaling solution to an adverse selection problem. We challenge this conclusion theoretically and empirically. In our model, insiders of good firms signal by putting and keeping (locking up) their money where their mouths are. Our model yields two comparative statics: lockups should be shorter when a firm is 1) more transparent and/or 2) more risky. Using a sample of 4,013 initial public offerings and 3,279 seasoned equity offerings between 1988 and 1999, we find empirical support for our theoretical predictions.

Keywords: Lockup, Signaling, New Equity Issues, IPO, SEO

JEL Classification: G14, G32

Suggested Citation

Brau, James C. and Lambson, Val Eugene and McQueen, Grant R., Lockups Revisited. Available at SSRN: https://ssrn.com/abstract=580861

James C. Brau (Contact Author)

Brigham Young University ( email )

TNRB 640
Marriott School
Provo, UT 84602
United States
801-318-7919 (Phone)
801-422-0108 (Fax)

HOME PAGE: http://marriottschool.byu.edu/emp/brau/

Val Eugene Lambson

Brigham Young University - Department of Economics ( email )

130 Faculty Office Bldg.
Provo, UT 84602-2363
United States
801-378-7765 (Phone)

Grant R. McQueen

Brigham Young University - Department of Business Management ( email )

TNRB 636
Provo, UT 84602
United States
801-422-3017 (Phone)

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