Information Discovery in Share Lockups: Evidence from the Split-Share Structure Reform in China


  • We thank Bill Christie (Editor), an anonymous reviewer, Charles Cao, Jinliang Li, Zhishu Yang, and seminar participants at Tsinghua University and the China International Conference in Finance 2008 for helpful comments. Financial support from the China National Social Science Foundation (Project No. 08BJY151) and Minolu Kobayashi China Economic Research Fund is gratefully acknowledged.


We document a prominent abnormal stock return of –14% during the [–120, +20] day window around 482 lockup expirations in the split-share structure reform in China. The abnormal stock returns (selling volumes) are positively (negatively) correlated with firm information transparency and postreform performance improvement, but negatively (positively) related to the level of agency problems, suggesting the existence of information-based trading during the lockups. We present important evidence that institutional investors, especially mutual funds, possess superior information discovering capabilities than that of individual investors. Our findings confirm the information roles of lockups as a tool to signal firm quality and a commitment device to alleviate agency problems.