The Choice and Role of Lockups in IPOs: Evidence from Heterogeneous Lockup Agreements

This paper analyses heterogeneous lockup agreements from the London Stock Market. With hand-collected data, I compare and contrast absolute-date lockups with the relative-date lockups and single lockups versus staggered lockups. This paper tests several potential explanations for the choice of lockup contracts: (i) information asymmetry, (ii) signaling, (iii) agency problem, and (iv) certification. I find strong evidence for information asymmetry and certification (VC and prestigious underwriters) and partial support for agency explanation for the choice of lockups. The insider selling activity and lockup expiration returns are also consistent with asymmetric information, certification and agency hypothesis