Venture capital trusts and the expiration of IPO lockup provisions

Tianna Yang, Wenxuan Hou

Research output: Contribution to journalArticlepeer-review


Venture capital trusts (VCTs) were introduced to provide private equity capital for small expanding companies and to promote innovation. Investors in IPOs are rewarded with tax relief on the cost of lock-up provisions to stabilise the market. This paper examines the market reaction and trading activity around the expiration of lockup provisions of 148 VCTs listed on the London Stock Exchange from 1995 to 2006. Downward-sloping demand curve theory suggests that an increased supply of VCT shares at the expiry date could shift their value to a new equilibrium at a lower price. Supporting this prediction, we document evidence of negative abnormal returns as well as permanent increases in the price discount relative to net asset value and trading volumes at and around the expiries of the required holding periods of VCTs. In addition, less negative abnormal returns, lower abnormal discounts and lower abnormal trading volumes are associated with VCTs that invest in AIM-listed companies due to lower information asymmetry, that experience lower prior performance due to a less pronounced disposition effect, and that are subject to a shorter lock-up horizon or are offering more generous tax benefits.
Original languageEnglish
JournalThe European Journal of Finance
Publication statusPublished - 6 Apr 2016


  • IPO
  • lock-up provisions
  • income tax relief
  • performance
  • discount
  • trading volume
  • venture capital trusts


Dive into the research topics of 'Venture capital trusts and the expiration of IPO lockup provisions'. Together they form a unique fingerprint.

Cite this