The Influence of Information Asymmetry on IPO Lock

Most of major shareholders, known as promoters of the firms, are subject to lock-up ratio for a certain period, following their company’s IPO listing. Interestingly, the lock-up ratio among firms vary, suggesting that it serves as a signalling tool to minimize potential conflicts between insiders and uninformed investors. This article investigates the influence of two main factors, that is, underwriter reputation and market capitalization on lock-up ratios. The regression results show that market capitalization, a proxy for firm size, tends to have a positive impact on lock-up ratio while the effect of underwriters’ reputation is weak. The findings also indicate that large firms with quality underwriters (proxied using the interaction of market capitalization and underwriter reputation) have lower information asymmetry and risk, and, therefore, are associated with higher lock-up ratios