Impact of Lock-Up Provision on Two IPO Anomalies in the Immediate Aftermarket

Abstract

Lock-up provision may extend its role as a signaling tool, albeit its practice is mainly to ensure the commitment of major shareholders to the well-being of IPO companies at least during lock companies at least during lock-up period. Despite the mandatory lock up period. Despite the mandatory lock-up ratio of 45 percent  up ratio of 45 percent of outstanding shares, the voluntary action of major shareholders which iss revealed through  revealed through higher locked ratios signals some information about the IPO companies, for instance quality of the issuers. The information quality of the issuers. The information signaled through the voluntary action elicits different  ignaled through the voluntary action elicits different investors’ trading behavior and subsequently performance of IPO in the immediate  of IPO in the immediate aftermarket. This paper examines the impact of lock-up provision on two IPO anomalies in the immediate aftermarket; initial return and flipping activity. Employing data of 383  the immediate aftermarket; initial return and flipping activity. Employing data of 383 Malaysian IPOs listed from January 2000 to December 2013,, multiple regression analysis  multiple regression analysis reveals that lock-up provision (period and ratio) influences flipping activity, more via its committing role instead of signaling role committing role instead of signaling role.