Venture capital and IPO lockup expiration:an empirical analysis

Abstract

Most initial public offerings (IPOs) feature so-called "lockup" agreements, which bar insiders from selling the stock for a set period following the IPO, usually 180 days. We examine stock price behavior in the period surrounding lockup expiration for a sample of 2,529 firms over 1988 to 1997. We find that lockup expirations are, on average, associated with significant, negative abnormal returns, but the losses are concentrated in firms with venture capital (VC) backing. For the VC-backed group, the largest losses occur for "high-tech" firms and firms with the greatest post-IPO stock price increases, the largest relative trading volume in the period surrounding expiration, and the highest quality underwriters.