Moral hazard,asymmetric information and IPO lockups |
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| Authors: | Chris Yung Jaime F Zender |
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| Institution: | 1. Department of Accounting, Finance and Economics, Griffith Business School, Nathan Campus, Griffith University, Nathan, QLD 4111, Australia;2. Department of Accounting, Finance and Economics, Griffith Business School, Gold Coast Campus, Griffith University, Southport, QLD 4125, Australia;1. Department of Finance, National Taichung University of Science and Technology, No.129, Sec. 3, Sanmin Road, North District, Taichung City 404, Taiwan, ROC;2. Institute of International Business, National Cheng Kung University, No.1, University Road, Tainan City 701, Taiwan, ROC;3. Department of International Business Management, Tainan University of Technology, No.529, Zhongzheng Road, Yongkang District, Tainan City 710, Taiwan, ROC;4. Department of Business Administration, Shih Hsin University, No.1 Lane17 Sec. 1, Mu-Cha Road, Taipei City 116, Taiwan, ROC |
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| Abstract: | Moral hazard and asymmetric information have both been proposed as the motive behind the use of IPO lockup provisions, with each receiving empirical support in the literature. Rather than consider them to be mutually exclusive motivations, we hypothesize that each is dominant for a different set of firms. We provide novel empirical support for the underwriter certification hypothesis then use this hypothesis to categorize the firms in our sample. Firms that are certified by a reputable underwriter see a reduction in the severity of asymmetric information relative to other firms and therefore will be more likely to see moral hazard as the friction that motivates the use of the lockup provision. For those firms that are unable to obtain high reputation underwriter certification it is relatively more likely that asymmetric information is the motivation for the use of the lockup provision. Based on this separation of firms we introduce and provide empirical support for a novel set of hypotheses concerning the lockup period. |
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