Contracting under asymmetric information: Evidence from lockup agreements in seasoned equity offerings |
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| Authors: | Jonathan M. Karpoff Gemma Lee Ronald W. Masulis |
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| Affiliation: | 1. University of Washington, Foster School of Business, Seattle, WA 98195, USA;2. College of International Studies, Kyung Hee University, Republic of Korea;3. University of New South Wales, School of Banking and Finance, Sydney, NSW 2052, Australia |
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| Abstract: | We document the frequent use of lockup agreements in seasoned equity offerings (SEOs) and examine the determinants of their use, duration, and early release. We find that the likelihood of an SEO lockup and its duration are positively related to issuer information asymmetry measures. Lockup duration is negatively related to underwriter spreads and underpricing, indicating that lockups lower expected flotation costs. Lockups are frequently released early following share prices rises. We conclude that lockups represent a contracting solution to asymmetric information and agency problems that plague equity issues by helping to insure SEO quality and deter opportunistic insider trading. |
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| Keywords: | G32 G24 |
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