The Expiration of IPO Share Lockups


  • Laura Casares Field,

  • Gordon Hanka

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    • Penn State University. This paper has benefited from the comments of Harold Mulherin, Frank Hatheway, Jonathan Karpoff, Megan Partch, Jay Ritter, Kim Rodgers, Dennis Sheehan, René Stulz (the editor), Kent Womack, an anonymous referee, and participants of the Penn State and Michigan State finance workshops. We thank Audra Boone, Jennifer Juergens, and Patricia Wollan for excellent research assistance. Support for this research was provided by Division of Research, Smeal College of Business, Penn State University.


We examine 1,948 share lockup agreements that prevent insiders from selling their shares in the period immediately after the IPO (typically 180 days). While lockups are in effect, there is little selling by insiders. When lockups expire, we find a permanent 40 percent increase in average trading volume, and a statistically prominent three-day abnormal return of −1.5 percent. The abnormal return and volume are much larger when the firm is financed by venture capital, and we find that venture capitalists sell more aggressively than executives and other shareholders. We find limited support for several hypotheses that may explain the abnormal return, but no complete explanation.