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Keywords:

  • lock-up;
  • underwriter agreement;
  • abnormal returns;
  • disposition effect
  • G24/G30

Abstract

The lock-up agreement between an underwriter and an issuing firm's principals prohibits sale of securities for a period of time following the offering date. Investment banks must support the stock following an offering. The lock-up assures investors that the restricted shares will not enter the market, at least for a period of time. Negative abnormal returns prior to the lock-up release show that unrestricted investors liquidate positions prior to the scheduled lock-up release. Negative abnormal returns are more robust for firms that are not influenced by SEC Rule 144 than for firms that are.