The influence of lock-up provisions on IPO initial returns: Evidence from an emerging market

Mohd‐Rashid, Rasidah; Abdul-Rahim, Ruzita; Yong, Othman

doi:10.1016/j.ecosys.2014.03.003

Cited by 56 publications

(112 citation statements)

References 34 publications

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“…Underwriter reputation is reported to have a positive (Dimovski & Brooks, 2008;Kenourgios et al, 2007;Ammer & Ahmad-Zaluki, 2016) and negative (Jelic et al, 2001;Neuberger & Chapelle, 1983;Tong & Ahmad, 2015;Sundarasen et al, 2017) relationship with the initial return. Furthermore, studies on the lock-up period have reported a positive relationship with the initial return (Mohan & Chen, 2002;Mohd Rashid et al, 2014), while studies on auditor reputation have reported a negative relationship with the initial return (Michaely & Shaw, 1995;Khurana et al, 2017) and positive relationship with initial return (Sundarasen et al, 2017). Finally, Certo et al (2001) documented hat board reputation has a negative relationship with the initial return.…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

“…For example, a prestigious underwriter could signal the magnitude of risk of the issuing firm to prospective investors (Logue, 1973;Rumokoy, Neupane, Chung, & Vithanage, 2017). Besides that, the lock-up period is an appropriate signal to represent the issuing firm's quality (Mohd Rashid et al, 2014). Shareholder retention ratio is also considered by investors to be a good signal to reflect the quality of issuing firm because the insiders of the issuing firm have a much clearer knowledge of their firm's future cash flows than the outside investors (Leland & Pyle, 1977;Kang, Kang, Kim, & Kim, 2015).…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

“…Yong (2011) found that larger percentage of private placement could lead to a higher initial return, which points out the bandwagon effect due to the involvement of the bigger group of informed (institutional) investors in the issue. Mohd Rashid et al (2014) extracted two variables from the information provided by the prospectors regarding the lock-up, which are lock-up period and lock-up ratio. They concluded that the relationship with the initial return was more pronounced in the case of the lock-up period rather than a lock-upratio, and the lock-up period was more appropriate for signalling the quality of the firm.…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

“…The other objective from examining the five signals in the same model is to find out if the current results of the present study using the Malaysian IPO market can provide consistent results with the literature that investigated the individual relationship of the study signalling variables with the initial return. For example, shareholder retention (Clarkson, Dontoh, Richardson, & Sefcik, 1991;Habib & Ljungqvist, 2001;Leland & Pyle, 1977), underwriter reputation (Dimovski, Philavanh, & Brooks, 2011;Kenourgios, Papathanasiou, & Melas, 2007), lock-up period (Michaely & Shaw, 1994;Mohd Rashid, Abdul-Rahim, & Yong, 2014), auditor reputation (Michaely & Shaw, 1995) and board reputation (Certo, Daily, & Dalton, 2001;Yatim, 2011). The majority of the studies considered examining the individual relationship of each signalling variable with the initial return, ignoring their overall coherence in the IPO market.…”

Section: Introductionmentioning

confidence: 99%

“…2 Furthermore, another reason for the high information asymmetry in the Malaysian IPO market is caused by the fixed-priced offer mechanism of pricing the IPOs, where the fixed-priced offer mechanism set the offer price before the allocation of IPOs in the market (Yong, 2011). 3 According to Mohd Rashid et al (2014), this high level of information asymmetry makes Malaysia as one of the best candidates to examine the relationship between the study signals and initial return.…”

Section: Introductionmentioning

confidence: 99%

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2018

AAMJAF

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High-quality issuing firms with encouraging inside information regarding their prospect will use signalling to differentiate their issues from low-quality issuing firms and convince prospective investors regarding the value of their firm. Hence, the present study investigates the dominant signals in explaining the initial return in the Malaysian IPO market. The study investigates the following signalling variables: Lock-up period, shareholder retention ratio, underwriter reputation, auditor reputation and board reputation. Moreover, the current study also uses the stepwise regression analysis to know the order of contribution of the signalling variables to the overall model. The results of the regression analysis show that three signals out of five have a significant relationship with the initial return. Furthermore, the stepwise regression shows their order of contribution, where shareholder retention ratio is ranked first, followed by auditor reputation and board reputation. The outcomes of the present study offer new evidence regarding the kind of information that investors should be concerned with when evaluating IPOs and making decisions concerning investment in the Malaysian IPO market.

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Section: Literature Review and Hypothesesmentioning

confidence: 99%

Section: Literature Review and Hypothesesmentioning

confidence: 99%

Section: Literature Review and Hypothesesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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2018

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The role of mandatory lockup ratios in initial public offerings

Mohd‐Rashid

Abdul-Rahim

Khaw

et al. 2021

Journal of Public Affairs

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This paper examines the potential explanations for Initial Public Offering (IPO) lockup provisions. This study uses cross‐sectional regression, robust least squares, and quantile regression on data for the period from 2000 to 2014. We explore the explanation of lockup as (i) a signal of firms' commitment to alleviate the moral hazard problem, or (ii) a signal of firms' qualities. The results document that firms retain higher proportions of their shares as a signal of commitment rather than quality. Besides that, firms with higher lockup ratios are more likely to engage high‐quality underwriters for their listing exercise. The findings suggest that although the regulation requires major shareholders to lockup their entire shareholdings until 6 months after the IPO listing, they tend to keep higher proportions than the minimum requirement of 45% of the enlarged issued and paid up capital as a signal of commitment towards reducing the moral hazard problem. Thus, investors should recognise the signalling role of the lockup provision when they make investment decisions. Policymakers need to pay attention to the formulation of lockup provisions. While lockup is mandatory, the different percentages of shares locked up are of interest to this study. Further, the findings highlight the importance of lockup provisions in boosting the confidence of investors to participate in IPOs. This study provides new empirical evidence regarding the role of the lockup provision.

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Cross-influence of information and risk effects on the IPO market: exploring risk disclosure with a machine learning approach

et al. 2022

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The paper examines whether the structure of the risk factor disclosure in an IPO prospectus helps explain the cross-section of first-day returns in a sample of Chinese initial public offerings. This paper analyzes the semantics and content of risk disclosure based on an unsupervised machine learning algorithm. From both long-term and short-term perspectives, this paper explores how the information effect and risk effect of risk disclosure play their respective roles. The results show that risk disclosure has a stronger risk effect at the semantic novelty level and a more substantial information effect at the risk content level. A novel aspect of the paper lies in the use of text analysis (semantic novelty and content richness) to characterize the structure of the risk factor disclosure. The study shows that initial IPO returns negatively correlate with semantic novelty and content richness. We show the interaction between risk effect and information effect on risk disclosure under the nature of the same stock plate. When enterprise information transparency is low, the impact of semantic novelty and content richness on the IPO market is respectively enhanced.

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The influence of lock-up provisions on IPO initial returns: Evidence from an emerging market

Cited by 56 publications

References 34 publications

Untitled

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The role of mandatory lockup ratios in initial public offerings

Cross-influence of information and risk effects on the IPO market: exploring risk disclosure with a machine learning approach

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