Unlock Day Expiration and Mandatory IPOs Lock up Among ACE Firms in Malaysia

Syamsyul Samsudin,Nor Haliza Hamzah,Che Khalilah Mahmood,Nik Nur Shafika Mustafa

doi:10.5430/ijfr.v11n3p131

Abstract

This research studied the role of lockup in assessing price and volume of IPOs during the expiration of lockup in Malaysian market. The reaction of price is measured by the abnormal return while the reaction of volume is measured by the abnormal volume. The companies were selected from the years 2010 to 2018 and only companies that were still listed in Bursa Malaysia were chosen. The time frame of the study was 30 days before and 30 days after the expiration date of lock up provision. The results may show for these circumstances of i) the volume will remain and the price will decrease; ii) volume will be decreased and price will be decreased too and iii) promoters retain percentage of shares during expiration date. For situation number i), it might show the sign of a quite good quality of performance of IPOs in stock market. Evidently, the second circumstance shows decrease in price and volume of IPOs after expiration date. The scenario actually leads by demand and supply of stock. Another important evidence which supports the insignificant result is promoters retain percentage of shares during expiration date. The amounts that should be released by the companies are not offered to the market during that time. By looking at the Signaling Theory, insiders of IPOs firms who are previously restricted from selling their holdings have the first chance to sell large propositions of their shares. Investors will know the dates of IPO lockup expiration and numbers of shares by looking at the prospectus. Due to the scenario, the price and volume of IPOs will be reacting during expiration date based on this theory. It is hoped that this study will help investors or any Malaysian market participation especially in the IPOs market to notice the situation in Malaysian market regarding the lock up provision.

Highlights

Background of the StudyMost of the companies that are involved in IPOs have the intention to raise their capital, and increase the public awareness about the company’s existence which may lead to new customers and opportunities
It can be proved by observing the t-value of the 14th day which is greater than t-value at the 5 per cent significant level and the null hypothesis which stated that there is no reaction from abnormal volume on IPOs 14 days before the expiration failed to be rejected
The reaction of abnormal volume 21 days before and after lock up expiration date, the t-value for the 21st day before and after the expiration date is greater than the 5% significant level

Summary

Introduction

Background of the StudyMost of the companies that are involved in IPOs have the intention to raise their capital, and increase the public awareness about the company’s existence which may lead to new customers and opportunities. IPOs will face under-pricing which means the shares are sold below its market value because of concerns from investors regarding the liquidity and uncertainty of the shares These concerns occur due to no historical performance of the shares since they are newly issued shares. Different from other countries, Malaysia has a fixed lock-up length of six months that was set by the Securities Commission of Malaysia which causes IPO companies to being unable to choose the length of lock-up that they desire. This provision can be explained from Policies and Guidelines on Issue/Offer of Securities that was published in 1995.

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Conclusion