Lock-In Agreements in Venture Capital-Backed UK Ipos

73 Pages Posted: 17 Sep 2003

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

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Date Written: September 2003

Abstract

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

Suggested Citation

Espenlaub, Susanne K. and Goergen, Marc and Khurshed, Arif and Renneboog, Luc, Lock-In Agreements in Venture Capital-Backed UK Ipos (September 2003). Available at SSRN: https://ssrn.com/abstract=443860 or http://dx.doi.org/10.2139/ssrn.443860

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 (Contact Author)

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

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)

Luc Renneboog

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

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

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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