Chapter 14: Do directors trade after IPO lockup expiry?
On 16 August 2012, Facebook’s first lockup ended and more than 271 million shares became eligible for trading. The Wall Street Journal reported that, by 3.30 p.m. (New York time), more than 141 million shares had traded. This was three times the daily average over the last 30 days. By 4.00 p.m., Facebook’s share price had fallen to $19.87, a drop of nearly 6.3 per cent compared with the closing price on the previous day. The press speculated that the reason for the fall in Facebook’s share price was that some of the directors and early investors were expected to sell their holdings. This speculation proved to be correct. Peter Thiel, one of the directors of Facebook, sold 20.1 million shares when the lockup expired. More generally, do directors of initial public offering (IPO) firms trade when lockups expire, and is their trading accompanied by a drop in the share price? In this chapter we answer this question by studying the trading behaviour of directors of 233 UK IPOs that came to the market during 1992–98.
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