Lock-In Agreements in the UK: Is There a Fourth IPO Anomaly?

34 Pages Posted: 16 Apr 2001

See all articles by Susanne Espenlaub

Susanne Espenlaub

University of Manchester - Division of Accounting and Finance

Marc Goergen

IE Business School, IE University; European Corporate Governance Institute (ECGI)

Arif Khurshed

University of Manchester - Manchester Business School, Division of Accounting Finance

Date Written: undated

Abstract

When a company offers shares in an Initial Public Offering (IPO), insiders typically undertake a lock-in agreement that prohibits them from selling their shares for a specified period of time after the IPO. Recent evidence from the US has shown that there are predictable share price movements at the time of expiry of these lock-in periods thus challenging the Efficient Markets Hypothesis. Using a sample of 188 firms that went public on the London Stock Exchange (LSE) during 1992-1998, we focus on the characteristics of the lock-in agreements in the UK and also on the share price behaviour of the firms around the lock-in expiry date. We find that the lock-in contracts of the LSE listed firms are much more complex, varied and diverse as compared to the US contracts, which are usually standardised at 180 days after the IPO. We also find evidence of negative share price movements at and around the lock-in expiry dates thus providing further support to the US evidence. The deterioration in stock returns around the expiry date is particularly pronounced for high-tech companies.

Keywords: Initial public offerings, lock-in, high-tech

Suggested Citation

Espenlaub, Susanne K. and Goergen, Marc and Khurshed, Arif, Lock-In Agreements in the UK: Is There a Fourth IPO Anomaly? (undated). Available at SSRN: https://ssrn.com/abstract=266902 or http://dx.doi.org/10.2139/ssrn.266902

Susanne K. Espenlaub

University of Manchester - Division of Accounting and Finance ( email )

Crawford House
Oxford Road
Manchester M13 9PL
United Kingdom
44 161 275 4026 (Phone)

Marc Goergen

IE Business School, IE University ( email )

Finance Department
Maria de Molina, 12
Madrid, 28006
Spain

HOME PAGE: http://www.ie.edu/business-school/faculty-and-research/faculty/marc-goergen/

European Corporate Governance Institute (ECGI) ( email )

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

HOME PAGE: http://www.ecgi.org

Arif Khurshed (Contact Author)

University of Manchester - Manchester Business School, Division of Accounting Finance ( email )

Crawford House
Oxford Road
Manchester, M15 6PB
United Kingdom
+44 0 161 275 4475 (Phone)
+44 0 161 275 4023 (Fax)

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