PO Lock‐in Agreements in the UK

Abstract

When a company offers shares in an initial public offering (IPO), existing owners often enter into lock‐in agreements prohibiting them from selling shares for a specified period after the IPO. There is some recent US evidence of predictable share‐price movements at the time of expiry of these lock‐in agreements. Using a sample of 188 firms, 83 classified as high‐tech and 105 others, that went public on the London Stock Exchange (LSE) during 1992–1998, we focus on the characteristics of lock‐in agreements in the UK and on the behaviour of stocks returns around the lock‐in expiry date. We find that the lock‐in contracts of LSE‐listed firms are much more complex, varied and diverse than US contracts, which usually standardise the lock‐in period at 180 days after the IPO. We also find evidence of negative abnormal stock returns at and around lock‐in expiry of similar magnitude to those reported in US studies. However, these abnormal returns are typically not statistically significant. While the deterioration in stock returns immediately around the expiry date appears to be particularly much more pronounced for high‐tech stocks than for others, the differences in performance are not statistically significant.