Information Discovery in Share Lockups: Evidence from the Split-Share Structure Reform in China

We document a prominent abnormal stock return of —14% during the [-120, +20] day window around 482 lockup expirations in the split-share structure reform in China. The abnormal stock returns (selling volumes) are positively (negatively) correlated with firm information transparency and postreform performance improvement, but negatively (positively) related to the level of agency problems, suggesting the existence of information-based trading during the lockups. We present important evidence that institutional investors, especially mutual funds, possess superior information discovering capabilities than that of individual investors. Our findings confirm the information roles of lockups as a tool to signal firm quality and a commitment device to alleviate agency problems.