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BItNotes n°5

BItNotes n°5
"New listings and lock-up agreements"
F.Bertoni, P.A. Randone, G.Giudici, C.Rochira, P.Zanoni - December 2002


When a company offers shares to the public, insiders typically undertake a lock-up agreement that prohibits them from selling a part of their shares for a specified period of time after the listing. This provision is compulsory for companies listing on the Italian Nuovo Mercato. The aim of the clause is to protect minority shareholders and reduce information asymmetry. Recent evidence from the US, UK and Germany has shown that the time of expiry of these lock-up periods is associated with increased daily turnover and negative share price movements. The evidence is significant for technology companies and venture-backed firms. In this work we focus on the characteristics of the lock-up agreements in Italy from January 1999 to October 2002 and also on the share price behaviour of the firms around the lock-up expiry date. Many of the results reported by the literature are confirmed. We highlight that (i) before the main lock-up expiration of firms listed on the Nuovo Mercato an increase in the turnover volume is detected, (ii) the deterioration in stock returns around an expiry date is particularly significant for venture-backed companies, participated by institutional investors, but only if the agreement is imposed by the listing requirements, (iii) after the expiry date, sales by insiders and institutional investors are limited and progressive, and (iv) even firms listed on the main board of the Italian Exchange voluntarily engage in lock-up contracts, but the effects at the expiry date are different from the case of the Nuovo Mercato. The evidence seems to show that lock-up expirations are associated with increased uncertainty about the insiders' and institutional investors' behaviour. The results stimulate a discussion about the opportunity to disclose the intention of inside shareholders around the lock-up expiry date.

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Last update:  December 23 2005 - 10:22
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