The Effect of Lockup on Post-IPO Underperformance

This research investigates the relationship between lockup decision and post-IPO underperformance, a relationship that has not yet been empirically examined. Three main results are reached. First, the stock performance of IPOs with lockup declines significantly after lockup expired. Specifically, relative to period before lockup expiration and to firms without lockup, firms with lockup significantly underperform post lockup expiration, especially in stock performance. Second, IPOs with lockup and IPOs with longer lockup length tend to experience more serious post-lockup underperformance. Third, IPOs with higher investor sentiment during lockup suffer from greater post-lockup underperformance, in line with the “over-optimism correction” argument.