ABSTRACT
Information asymmetry is higher in developing than in developed markets (Eldomiaty 2008). It is expected to be more prevalent in the case of IPOs because unlike listed firms, privately-held firms are not required to disclose their information to the public. Such adverse condition however can be alleviated if investors pay sufficient attention on information provided by the issuers in the prospectus, especially information which disclosure is required by the market regulator. One such information is lock-up provision which has been conceptualized as a prohibition on the existing shareholders from selling their shares within a specific period of time after the IPOs are listed (Mohan & Chen 2001; Brav & Gompers 2003). In the context of Malaysian IPOs, the lock-up provision (legally referred as share moratorium) is imposed on the major shareholders (referred as promoters) of the IPO issuers. Despite the emphasis on lock-up provision by the market regulators, only few studies have attended the conjecture that information which is required to be disclosed in prospectus should carry a certain weight on the firm’s valuation (Bhabra & Pettway 2003). This study attempts to bridge the research gap by examining
the role of lock-up provision in explaining the performance of IPOs, while taking into consideration the effect of information asymmetry.
