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The lock-up provision conveys important information about the ex-ante risk of an IPO. Using a unique trading data in pre-IPO market and a unique data of exact days of withdrawing lockup shares, we are able to test the trading behavior of institutional investors around the lockup announce day and expiration day using a sample of 218 IPOs firms from 2005 to 2011 in Taiwan. We are able to find that the abnormal returns of institutional investors are insignificant around the lockup announce day. Second, the relationship between the net buying and selling of institutional investor and cumulative returns around announce day is insignificant. Also, the relationship between lockup ratio and institutional investor trading around, and the relationship between the lockup ratio and initial return of IPOs are all insignificant. This implies that announcement of lockup ratio carries no information.We then examine whether the trading of institutional investors around the withdrawing of lockup shares affects long term performance. We do find that there is a positive relationship between foreign institution trading and ROE for one year after IPO. It implies that the trading behavior of institution investors around lockup expiration day contains information of long term performance. |
