Long-Run Performance of IPOs: The Role of Lockups

We analyse the relationship between the lockup length and the long-run performance of initial public offerings (IPOs) on London Stock Exchange Main Market during the period 1995-2006. Our findings suggest that IPOs with longer lockups consistently show superior performance relative to IPOs with shorter lockups across different benchmarks and factor models in both event time and calendar time analysis. Moreover, our cross-sectional results confirm lockup length as a significant predictor of long-run IPO performance. In addition, we investigate abnormal returns around lockup expiry and find that negative abnormal returns around lockup expiry are concentrated in IPOs with shorter lockups. Overall, we document that longer lockups are related to better long-run performance of IPOs and our findings are consistent with the view that issuing firms signal their quality through longer lockups.