The effect of lockup on management earnings forecasts disclosure in French IPOs

This study investigates the effect of lockup agreements on management earnings forecasts in initial public offering (IPO) prospectuses. Using a sample of 312 French firms that went public over the period 1997-2016, we find that IPOs with lockup agreements are more likely to disclose conservative earnings forecasts. In particular, we provide evidence that IPOs with more locked-up shares and those selecting longer lockup periods, have more accurate management earnings forecasts. In other words, managers of firms with a higher proportion of shares locked up and longer lockup agreements experience greater costs of non-diversification of idiosyncratic risk. They tend, thus, to provide more conservative and accurate forecasts to prevent costs arising from earnings forecast error. These results are robust to a number of sensitivity tests.