Lockup Length Research Articles

Lock-up provisions and valuation of Turkish IPOs

I examine the association between lock-up length and valuation bias in a sample of 83 firms going public at Borsa Istanbul. The study is motivated by the fact that lock-up and valuation decisions are given simultaneously preceding the issue, so that lock-up information is incorporated into the valuation model. The problem is important because investors mostly rely on prospectuses to infer company value and make an informed investment decision. I hypothesize an inverse relationship between lock-up period length and valuation bias, on the basis that longer voluntary lock-ups would mitigate information asymmetry in the aftermarket and underwriters value issuers committed to long lock-ups more conservatively in anticipation. I find support for this prediction in the tests. Results show that issuers with long lock-ups are less overvalued relative to the issuers with short lock-ups, while signaling explanation of lock-ups is rejected for the Turkish market. The study contributes to the literature by showing that lock-up length selection plays a significant part in the pre-issue valuation, while market norms and concerns about regulations are paramount in the selection of lock-up length.

Lockup Agreements and Survival of UK IPOs

AbstractThis paper examines the role of lockup agreements on the survival of 580 UK Initial Public Offerings (IPOs) during the period of 1990–2011. Our accelerated failure time (AFT) survival model shows a statistically and economically significant effect of lockup length on the post‐IPO survival. A 12 month increase in median lockup period increases the (median) survival time by 27%. Furthermore, the failure rates for IPOs with longer lockups are consistently lower than the failure rates for IPOs with shorter lockups regardless of delisting reasons. The results are robust to choice of different survival estimation models, heterogeneity, clustering, and alternative specification of variables. Our results highlight the importance of lockup characteristics on the subsequent survival of newly listed firms and inform recent debate regarding alleged short‐termism in the UK equity market.

Role of asymmetric information and moral hazard on IPO underpricing and lockup

This paper analyses the role of asymmetric information and moral hazard on IPO underpricing and lockups. I document that high information asymmetry is related to underpricing while the lockup length and lockup expiration return is related to moral hazard. Accordingly, lockup length and underpricing work as substitute signals. These results relate to the UK's unique institutional settings: long and diverse lockups, and a close relationship between the issuing company and the corporate broker. Moreover, director ownership affects lockup length and lockup expiration return in a non-linear fashion.

Effects of tribological properties of water-based drilling fluids on buckling and lock-up length of coiled tubing in drilling operations

This study evaluates the performance of three lubricants on reducing friction between wellbore and coiled tubing (CT) and hence improving axial force transfer, reducing buckling, and enhances the limited reach of CT. The lubricants were evaluated using water-based drilling fluids composed of lubricants of different concentrations. Experiments were conducted in a lubricity tester and by using an in-house experimental setup that imitates the wellbore being drilled in the presence of drilling fluids. Results showed that reducing COF does not change CT buckling shape or mode, but it alters the initiation and transition between buckling modes and increases lock-up length. Effects of increasing lubricants percentages on mud properties were also examined. They showed positive impact compared to tests conducted without lubricants.

IPO lockups, founder power, and executive compensation

Purpose – The purpose of this paper is to examine the relationship between IPO lockups and founder-CEOs’ compensation and incentives in newly public firms. The paper argues that existence and length of lockup agreements are affected by bargaining power of founders, which will consequently influence the determination of their compensation contracts. Design/methodology/approach – Multivariate tests are constructed to examine the relationship between IPO lockups and executive compensation. OLS, fixed-effect panel data model, and the Heckman two-stage model are all utilized to conduct the tests. Findings – The study finds that lockup existence and lockup length are negatively related to founder-CEOs’ total compensation and positively related to founder-CEOs’ equity incentives. The results hold after controlling for the endogenous decision to sign a lockup agreement at the IPO. Research limitation/implications – The paper's results suggest that the power of founders and other insiders is a crucial factor in the lockup determination process besides economic factors identified in previous studies. The paper's results also echo the political power theory in the management literature which suggests that an organization's decision making is heavily influenced by relative power of organizational members and reflects their preference. Originality/value – The paper raises a new explanation for the determinant of IPO lockups that supplements the extant theories. The paper argues that existence and length of lockup agreements could be affected by bargaining power of insiders.

WHAT DETERMINES SEO OFFER‐DAY RETURNS?

AbstractWe examine seasoned equity offering (SEO) initial‐day returns after controlling for the dilution effect from the SEO discount and new shares offered. Contrary to the existing literature that ignores the effect of dilution, we find that initial‐day returns are not consistently positive. Modeling adjusted initial‐day returns, we show that dilution‐adjusted initial‐day returns respond to partial price adjustments reflecting both private and public information. Additional determinants of SEO offer‐day returns include lockup length, discount reversal, prior operating performance, and underwriter reputation. Long‐run tests reveal that adjusted initial‐day returns are not predictive of postissuance long‐term performance.

IPO lockup expiration in the Middle East and North Africa

We examine stock market reaction to IPO lockup expiration for a sample of 60 companies in the Middle East and North Africa (MENA) region. Lockups in the MENA are set by regulators as opposed to being negotiated between firms and their underwriters, and are typically longer but vary less than those in the United States. The MENA therefore provides a unique environment in which to study the relationship between lockup length, firm ownership, and market reaction. We find that prices decline on unlock day much the same as they do in the United States. Longer lockups are associated with smaller declines, and this association is driven by non-family owned firms. We also find that family firms subject to longer lockups are more likely to experience bigger declines (or smaller increases) in trading volume than family firms under short lockup, but no such an association exists for non-family firms. Lockup length is negatively related to firm size and positively related to the fraction of IPO shares on offer that are primary, which is consistent with regulators setting shorter lockups for well-established firms and those signaling an ongoing commitment to the business. And while evidence of general IPO underpricing is inconclusive for the MENA, family firms that face short lockups are significantly more likely to enjoy higher returns on their first day of trading than family firms that face long lockups.

Lockup Agreements and Survival of IPO Firms

This paper examines the role of lockup agreements on the survival of 580 UK Initial Public Offerings (IPOs) during the period of 1990-2006. Our results suggest that lockup length positively affects the survival and IPO firms with longer lockups exhibit better survival rates and times; thus lending support to the views that lockups signal firm quality. Our study highlights the impact of choice of lockup characteristics on the subsequent survival of newly public firms.

Lockup and Voluntary Earnings Forecast Disclosure in IPOs

We examine the relation between lockup length and voluntary earnings forecast disclosures for IPOs in Singapore. Unlike firms in the United States, companies in Singapore are allowed to provide earnings forecasts in their IPO prospectuses. We find that forecasters are more likely to accept longer lockup periods, so that the lockup expires after the first post‐IPO earnings announcement. Our study also shows that because the lockup agreement removes personal incentives to issue aggressive forecasts, IPO firms tend to issue conservative forecasts. Overall, our results suggest that the lockup mechanism adds credibility to the earnings forecast given in the IPO prospectus.

Horizontal cylinder-in-cylinder buckling under compression and torsion: Review and application to composite drill pipe

Available analytical results and experiments on the structural behavior of constrained horizontal cylinders subjected to axial compression, torsion, and gravitational loads are reviewed. Such configurations are of interest to the oil-drilling field and provide static design expressions for steel tubulars. The buckling problem is similar to restrained railroad tracks and submerged/underwater pipelines under thermal expansion. Due to outer cylinder constraint and gravitational loads, analysis has shown that long cylinders initiate buckling at loads significantly higher than classical Euler buckling loads. For these constrained long cylinders, buckling initiates in a sinusoidal mode that snakes along the lower surface of the constraining cylinder. Classic analytical expressions hold that as the axial load increases, the cylinder achieves an overall helically buckled state in which the buckled cylinder forms a helix spiraling around the inner surface of the constraining cylinder. Torsion is shown to have little effect on either buckling load but controls the sense/direction of the helical buckling. Little experimental data exist on constrained cylinder buckling, and it is unclear how the initiating sinusoidal mode transitions to the helical mode. Implications of the buckling progression for composite cylinder applications are described including the finding that composites perform poorly relative to steel on the metric of buckling due to lower density and axial stiffness; composites perform well on the metric of lock-up length when friction is considered. Based on this review and findings for composite cylinders, recommendations are made for further work.