“Moral Hazard, Asymmetric Information and Ipo Lockups” by Yung and Zender (2010)
“Moral hazard, asymmetric information and IPO lockups” by Yung and Zender (2010)
We will first examine the development of various hypothesis surrounding lock-ups, this will be followed by the empirical results supporting the use of proxy variables and we explain how they were used to test the variety of hypotheses. Particular attention will be paid to the separate subsamples of firms, and the data concerning the differential correlation between underpricing and lockup length across the subsamples of firms. Further, this literature examines the motivations for lockup provision, the determinants of the length of the lockup period, and the returns around lockup expiration. Lastly the relevance of this article to SA and various other international firms will be discussed.
Different studies support for the hypothesis that the lockup provision is used to control moral hazard, whilst other hypothesize that lockups are used to prevent adverse selection. The article develops a set of testable predictions concerning the length of the lockup period with Underpricing as key proxy variable in the analysis. It is important to note that underpricing is driven by asymmetric information, not by moral hazard. Thus, increasing the severity of the asymmetric information problem should impact underpricing and lockup length for the asymmetric information firms but only underpricing for the moral hazard firms. However, before we go any further, below are the key concepts in the piece.
1. IPO lockups: A contractual caveat referring to a period of time after a company has initially gone public, usually between 90 to 180 days. During these initial days of trading, company insiders or those holding majority stakes in the company are forbidden to sell any of their shares. The lockup provision embedded in the contract between an underwriter and a firm engaged in its initial public offering of equity. Once the lock-up period ends, most trading restrictions are removed.
An IPO
We will first examine the development of various hypothesis surrounding lock-ups, this will be followed by the empirical results supporting the use of proxy variables and we explain how they were used to test the variety of hypotheses. Particular attention will be paid to the separate subsamples of firms, and the data concerning the differential correlation between underpricing and lockup length across the subsamples of firms. Further, this literature examines the motivations for lockup provision, the determinants of the length of the lockup period, and the returns around lockup expiration. Lastly the relevance of this article to SA and various other international firms will be discussed.
Different studies support for the hypothesis that the lockup provision is used to control moral hazard, whilst other hypothesize that lockups are used to prevent adverse selection. The article develops a set of testable predictions concerning the length of the lockup period with Underpricing as key proxy variable in the analysis. It is important to note that underpricing is driven by asymmetric information, not by moral hazard. Thus, increasing the severity of the asymmetric information problem should impact underpricing and lockup length for the asymmetric information firms but only underpricing for the moral hazard firms. However, before we go any further, below are the key concepts in the piece.
1. IPO lockups: A contractual caveat referring to a period of time after a company has initially gone public, usually between 90 to 180 days. During these initial days of trading, company insiders or those holding majority stakes in the company are forbidden to sell any of their shares. The lockup provision embedded in the contract between an underwriter and a firm engaged in its initial public offering of equity. Once the lock-up period ends, most trading restrictions are removed.
An IPO