Short selling around the expiration of IPO share lockups

We are the first to examine daily short selling activity around the expiration of IPO share lockups. We find that short selling increases before the lockup expiration date and declines afterward, and the level of short selling is higher in stocks of venture capital (VC)- and private equity (PE)-backed IPOs than other IPOs. Unlike VC-backed IPO stocks, PE-backed IPO stocks do not experience a negative return or a trading volume jump on the lockup expiration date. PE investors do not reduce percentage ownership in the IPO firm as much as VC investors do after lockup expirations. Short selling in PE- and VC-backed IPO stocks prior to the lockup expiration date can predict PE and VC ownership reduction but not the stock returns after the lockup expires. In contrast, short selling in stocks of the IPO firms without a PE or VC investor can predict stock returns after the lockup expires.