Why SPAC Investors Should Listen to the Market

Jenkinson, Tim; Sousa, Miguel

doi:10.2139/ssrn.1341771

Cited by 29 publications

(18 citation statements)

References 5 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…First, we document the abnormal returns for all three SPAC securities around important days in their life, with owners of SPAC warrants experiencing the strongest one day abnormal return. Second, we do not find that SPAC mergers were value destroying as reported in Jenkinson and Sousa (2009). We confirm findings in previous studies and show that SPACs do not experience underpricing at the day of the IPO opposite to the findings in the IPO literature.…”

Section: Introductionsupporting

confidence: 89%

A story on SPACs

Lakičević

Vulanović

2013

Managerial Finance

View full text Add to dashboard Cite

PurposeThis paper aims to study characteristics of specified purpose acquisition companies (SPACs) and examine the performance of their securities over time.Design/methodology/approachPrevious findings in literature on SPACs' performance around the announcement of merger date are scarce, not uniform, and mostly address the performance of SPACs' common shares. The authors believe that more insights on merger announcements can be obtained if the perf]ormance of all three types of securities that SPACs issue during the IPO, namely units, common stocks, and warrants are analyzed simultaneously. In order to examine the behavior of these securities we form three samples with daily returns for three distinguished SPAC securities. Results are obtained for abnormal returns based on the market model from Brown and Warner.FindingsIt is found that SPACs represent a fairly unique way to raise capital. The incentives of their founders, underwriters, and investors are interdependent and successful business combinations generally result in significant returns to founders. The analysis shows that SPACs have a complex corporate structure in which the incentives of the founders, underwriters, and investors are interdependent and where successful mergers result in significant returns to the founders. It also shows that different SPAC securities do not exhibit similar reactions in response to announcements regarding their corporate status. While holders of all three securities realize positive abnormal returns on the merger announcement day, the strongest reaction is observed among the investors holding warrants, while common stock holders react very mildly.Originality/valueSPACs are recent phenomena in capital markets and very few papers in finance literature describe them. None of the existing papers evaluated performance of all three types of SPAC securities: units, common shares and warrants before this paper.

show abstract

Section: Introductionsupporting

confidence: 89%

A story on SPACs

Lakičević

Vulanović

2013

Managerial Finance

View full text Add to dashboard Cite

show abstract

“…Following Jenkinson and Sousa (2011) GoodSPAC is defined as one priced in the market at the level above trust value of share at the merger date and 54% of SPACs in the sample satisfy that requirement.…”

Section: Datamentioning

confidence: 99%

“…4 Lewellen(2009), Thompson (2010) confirm the lack of underpricing for SPACs entering financial markets in the U.S. Ignatyeva, Rauch, and Wahrenburg (2012) find no underpricing in the sample of European SPACs. Jenkinson and Sousa (2011) report that half of the SPACs are value destroying. 5 Notable exception is Rodrigues and Stegemoller (2012) Observing unique set of specified purpose companies this paper documents that SPACs' failure rate is at the level of 58.09%, higher than any previously reported failure rate in the post-IPO survival literature, and comparable only to Hensler et al (1997) failure rates of 55.10% for general companies.…”

Section: Introductionmentioning

confidence: 99%

SPACs: Post-Merger Survival

Vulanović

2016

SSRN Journal

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper studies how institutional characteristics of Specified Purpose Acquisition Companies (SPACs) are related to their post-merger survival. SPACs are unique financial firms that conduct the IPO with the solely purpose to use the proceeds to acquire another private company. Paper finds that institutional characteristics of SPACs are important in determining post-merger outcomes of new company, specifically when it comes to their suvival/failure. Namely, increases in pre-merger commitment by SPAC stakeholders and initial positive market performance increase post-merger survival likelihood. On the contrary, mergers with higher transaction costs and focused on foreign companies exhibit increased failure likelihood. Terms of use: Documents in EconStor may

show abstract

“…On the AIM, the Investment Companies can be considered equivalent to the CPC, although they must raise a minimum of £3 million in cash. In the U.S., the Special Purpose Acquisition Companies (SPACs) are similar to CPCs, but for large transactions (Berger, 2008;Jenkinson and Sousa, 2009).…”

Section: The Small Business Advocates" Perspectivementioning

confidence: 99%

Entrepreneurial equity financing and securities regulation: An empirical analysis

Carpentier

Suret

2010

International Small Business Journal: Researching Entrepreneurs

View full text Add to dashboard Cite

To protect investors, securities regulation generally restrains entrepreneurial ventures from entering the stock market. Scholars and regulators contend that strong rules and requirements for listing are essential to prevent the market from failing. However, these constraints can also unduly impede the growth of new ventures. We use the Canadian case to examine the effects of the relaxation of the regulatory constraints. Unlike in other countries, firms in Canada can list at a very early stage, without revenues, with a minimal size and even without writing a prospectus using the reverse merger technique. This provides a unique opportunity to examine entrepreneurial ventures listed on a public market. The quality of firms, their post-listing operating performance and strategy, and their fate largely support the opinion that strong listing requirements are essential to prevent the emergence of a lemon market. Investors involved in this market obtain very poor returns. This indicates that they are neither able to set correct prices in this market nor deal with the high level of information asymmetry therein. The reluctance of most regulators to relax the requirements for small business finance can therefore, be justified.

show abstract

Why SPAC Investors Should Listen to the Market

Cited by 29 publications

References 5 publications

A story on SPACs

A story on SPACs

SPACs: Post-Merger Survival

Entrepreneurial equity financing and securities regulation: An empirical analysis

Contact Info

Product

Resources

About