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Does the removal of the IPO lockup matter in IPO pricing?

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  • Gao, Shenghao
  • Liu, Jinzhao
  • Chan, Kam C.

Abstract

Using a regulatory change on the IPO lockup for institutional investors and a unique disclosure of institutional investor bidding information in China, we examine the impact of IPO lockup removal on IPO pricing. We document that the IPO lockup removal increases institutional investor bid price. The effect is stronger for sub-samples with less reputable underwriter and IPOs with high value uncertainty. The impact is channeled to a higher IPO offer price and a lower first day return. These results suggest that IPO lockup removal (IPO lockup) increases (decreases) IPO share valuation.

Suggested Citation

  • Gao, Shenghao & Liu, Jinzhao & Chan, Kam C., 2017. "Does the removal of the IPO lockup matter in IPO pricing?," Finance Research Letters, Elsevier, vol. 23(C), pages 246-252.
    • Handle: RePEc:eee:finlet:v:23:y:2017:i:c:p:246-252
    DOI: 10.1016/j.frl.2017.07.004
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Wenjun Wang, 2023. "Can experience mitigate precautionary bidding? Evidence from a quasi-experiment at an IPO auction," Journal of Asset Management, Palgrave Macmillan, vol. 24(2), pages 148-163, March.
    2. Helbing, Pia & Lucey, Brian M. & Vigne, Samuel A., 2019. "The determinants of IPO withdrawal – Evidence from Europe," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 415-436.
    3. Sun, Qian & Gao, Shenghao & Wu, Di & Chan, Kam C. & Cheng, Xiaoke, 2024. "Pre-IPO dividend puzzle: Reaction to IPO underpricing or post-IPO lockup? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    4. Mingsheng Li & Desheng Liu & Jing Zhang & Luxiu Zhang, 2021. "Volatile market condition, institutional constraints, and IPO anomaly: evidence from the Chinese market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 1239-1275, March.
    5. Gao, Shenghao & Meng, Qingbin & Chan, Jesse Y. & Chan, Kam C., 2018. "Cognitive reference points, institutional investors' bid prices, and IPO pricing: Evidence from IPO auctions in China," Journal of Financial Markets, Elsevier, vol. 38(C), pages 124-140.
    6. Azevedo, Alcino & Guney, Yilmaz & Leng, Jingsi, 2018. "Initial public offerings in China: Underpricing, statistics and developing literature," Research in International Business and Finance, Elsevier, vol. 46(C), pages 387-398.
    7. Wu, Ruei-Shian & Lo, Huai-Chun, 2022. "A Rose has its Thorn: The role of institutional investors in SEO firms’ reporting behavior," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 530-554.
    8. Gao, Shenghao & Cao, Feng & Fok, Robert (Chi-Wing), 2019. "The anchoring effect of underwriters' proposed price ranges on institutional investors' bid prices in IPO auctions: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 111-127.
    9. Sun, Feifan & Yin, Chen & Zhou, Sili & Zhu, Zijing, 2022. "IPO underpricing and mutual fund allocation: New evidence from registration system," International Review of Financial Analysis, Elsevier, vol. 84(C).
    10. Gao, Shenghao & Brockman, Paul & Meng, Qingbin & Yan, Xuemin, 2020. "Differences of opinion, institutional bids, and IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 60(C).
    11. Xu, Wen & Zhang, Linlang & Chan, Kam C., 2024. "The effect of gambling culture on initial public offering underpricing," Finance Research Letters, Elsevier, vol. 67(PB).

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    More about this item

    Keywords

    IPO lockup; IPO pricing; Auction; China;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General

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