The effects of IPO mandatory lockups and corporate governance on underpricing: evidence from the Australian Securities Exchange

Janto Haman, Keryn Chalmers, Victor Fang

Research output: Contribution to journalArticleResearchpeer-review


In Australia, initial public offering (IPO) firms not satisfying profit or asset tests are permitted to list on the securities exchange with mandatory lockups (MLs) imposed on insiders’ shares. We investigate whether such lockups, and the lockup periods, are associated with underpricing. We find that the incremental effect of the association between longer ML periods and higher underpricing is stronger for firms with higher insiders’ equity ownership subject to MLs relative to firms with lower insiders’ equity ownership subject to MLs. This suggests that the extent and length of insiders’ equity ownership subject to MLs convey information regarding IPO firms’ risk. We also find that good corporate governance reduces IPO underpricing for firms with MLs. It moderates the IPO underpricing for firms with higher and longer insiders’ equity ownership subject to MLs. Our findings are informative for regulators in understanding how MLs can assist in allowing smaller and younger firms with inadequate financial strength and performance to publicly raise equity capital, while morally protecting investors and preserving market integrity.

Original languageEnglish
Pages (from-to)854-869
Number of pages16
JournalJournal of Accounting, Auditing and Finance
Issue number4
Publication statusPublished - Oct 2020


  • moral hazard
  • IPO mandatory lockups
  • agency theory
  • underpricing and corporate governance

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