Do Investors Value SEO Lockup Agreements?

The literature has documented that a lockup agreement at the time of equity issuance plays two major roles: a signal of good firm quality and a commitment device. Both of these roles suggest that investors would value a stock offering with a lockup agreement higher than one without a lockup. In this paper, the authors investigate the relationship between investor response, measured by the initial day returns and the offer price revision, and SEO lockup agreements by studying a sample of 5,671 SEOs from 1988 to 2002. They find that the use and length of SEO lockup agreements increase the initial day returns, and the use of a lockup agreements is also positively related to the offer price revision.