The Signaling Role of IPO Lockups: Evidence from SMEs in Korea

Abstract

This study examines the signaling role of lockup extensions for initial public offering (IPO) firms subject to mandatory lockup provisions. The sample contains IPO firms that went public in the Korean stock market, which reduced the mandatory lockup period over the sample period. This study finds that (1) IPO underpricing is negatively related to the lockup extension length after the reform, and (2) the negative relationship in the post-reform period is stronger for firms characterized by high information asymmetry. The results imply that lockup extensions may reduce information asymmetry related to IPO underpricing when information asymmetry is acute.