Voluntary Disclosures around IPO Lock-up Expirations

We examine the impact of insider selling incentives on strategic voluntary disclosure behavior by firms. In order to identify the ex ante selling incentives, we use a sample of IPO firms and examine management forecasts of these firms from the date of going public through the four quarters following the lockup expiration date. Lockup expirations represent the first time that insider shareholders can sell their stock since the IPO and are characterized by a significant increase in trading volume. We contrast the voluntary disclosure behavior of firms during the lockup period, when they are prohibited from selling, with the period post lockup expiration when selling incentives are high. We provide evidence on the propensity to issue forecasts, the bias in these forecasts, and the market reaction to the forecasts. We find that firms delay bad news disclosures until the earnings announcement in the lockup expiration quarter. Firms also bias their forecasts more optimistically when trading incentives are present. We conjecture that the low litigation risk that persists after lockup expiration enables these strategic forecasts. The market does not appear to fully comprehend these incentives.