The impact of lockup period on survival, long-run performance and earnings management of IPOs in UK

Ahmad, Wasim (2015). The impact of lockup period on survival, long-run performance and earnings management of IPOs in UK. University of Birmingham. Ph.D.

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Abstract

This thesis examines the impact of lockup length on three important issues related to initial public offerings (IPOs) on Main Market of London Stock Exchange (LSE). First, we investigate the effect of lockup length on the survival of IPOs following five years after the issue. Our results show that IPOs with longer lockups have higher survival rates and longer survival time compared to IPOs with shorter lockups. Comparing the reasons of delisting from market, we find that IPOs with longer lockups are less likely to delist due to bankruptcy and other negative delisting reasons. The results from our survival models suggest that a 12-month increase in median lockup length increases the survival time by 27 percent, an effect which is statistically and economically significant. Second, a comparative analysis of long-run performance over three years after IPO reveals that IPOs with longer lockups have superior performance relative to IPOs with shorter lockups. These results are consistent across different benchmarks and factor models in both event-time and calendar-time analysis. Furthermore, longer lockup length is a statistically significant predictor of better long-run stock return performance using buy-and-hold returns. We also find negative abnormal returns around lockup expiry. The negative returns tend to be concentrated in IPOs with shorter lockups. Finally, we analyse the association between lockup length and the level of earnings management. We document a statistically significant inverse relationship between earnings management and lockup length. Longer lockups effectively reduce earnings management and this result is invariant to adjustments for potential endogeneity of lockups and alternative proxy for earnings management. Overall evidence suggests that longer lockups tend to be associated with longer survival, superior performance and lower earnings management.

Type of Work:

Thesis (Doctorates > Ph.D.)

Award Type:

Doctorates > Ph.D.

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