Second lockup period and post : IPO performance.

Abstract

A lockup period is a predetermined amount of time following an initial public offering (IPO) during which insiders and pre-IPO shareholders are prohibited from selling their shares. In Singapore, it is a common practice for companies to have lockup periods, similar to firms in the United States. However, unlike in the United States, many firms in Singapore also have a second lockup period in underwriter agreement after the expiration of the first lockup period. During the second lockup period, insiders and pre-IPO shareholders are allowed to sell a portion of their shares, but they must ensure that their aggregate shareholdings do not fall below 50% of the company’s issued share capital.

Extending the research of Chong and Ho [2007] who examined the purpose of lockups and discovered that a longer first lockup period would add credibility to voluntary earnings forecast disclosure in IPOs, we investigate the relationship between the second lockup period and post-IPO stock and operating performance. Using cumulative market-adjusted returns, we find that firms in general exude higher stock returns given the existence of second lockups and longer lockup periods. Employing operating performance proxies of return on assets (ROA), return on equity (ROE) and return on sales (ROS), we also find that firms with longer lockups and existence of second lockup periods have performed significantly better in the post-IPO five years time span.