IPO Lock-up expirations; An empirical study on the Nordic market during 2009-2016

Abstract: Purpose: The purpose of this study is to investigate whether abnormal returns can be observed in stock prices after the expiration of lock-up periods related to an IPO. In addition, the purpose is to analyse if private equity/venture capital (PEVC) ownership, the use of staggered lock-ups and the length of lock-up periods affect this return. Methodology: This event study examines how the market reacts around the expiration of IPO lock-up periods by using the market model. A multiple regression analysis was conducted where the dependent variable (cumulative abnormal return) was regressed on IPO characteristics specific variables. Theoretical perspectives: This dissertation is testing whether the semi-strong form of the efficient market hypothesis holds. In addition, theories regarding a downward sloping demand curve, costly arbitrage opportunities, information asymmetry and signalling theory are used to analyse the results. Empirical foundation: The sample consists of companies completing IPOs on Nasdaq OMX Nordic and Oslo Børs during 2009-2016, on the main market lists. Data were obtained from the databases Zephyr, Bloomberg Terminal and DataStream. Conclusions: The study provides new evidence for the Nordic market and concludes that abnormal returns exist around the expiration for lock-up periods with an observed significant abnormal return of -0.72%. The result shows evidence against the semi-strong form of the efficient market hypothesis and could potentially support a downward sloping demand curve and theories regarding information asymmetry between pre- and post-IPO owners and costly arbitrage opportunities. The study did not find any statistically significant evidence supporting that IPO characteristics in terms of PEVC-backing, staggered IPOs or the lock-up period length affects this abnormal return.