AAA Spark Meeting of the Regions

SPACs: An Examination of Acquisition Timeliness and Subsequent Performance

• In Event: Capital Markets Information

Abstract

Special Purpose Acquisition Companies (SPACs) are publicly traded shell companies that provide a way for private companies to become public. SPACs have tight timelines to acquire a SPAC Target, failing which they face liquidation. In this study, we examine the extent to which board characteristics affect the SPAC IPO to shareholder vote timeline. Additionally, we examine whether the ownership structure affects the SPAC Targets’ valuations and their post-merger stock performance compared to traditional IPOs. Utilizing a sample of 306 SPACs that successfully acquired SPAC Targets and 1,413 traditional IPOs between 2018 and 2021, we find an association between CEO and board characteristics and the completion timeline for SPAC Target acquisition approvals. Specifically, we find that CEOs with a background in accounting or finance and younger boards take lesser time whereas boards with more powerful CEOs and bigger size take more time for a successful acquisition. Our study also suggests that higher ownership by SPAC sponsors in the merged entity results in lower valuations of the respective SPAC Targets. Finally, we find that cumulative abnormal returns of SPAC Targets are negative and significantly lower than those of traditional IPOs. This difference arises primarily because of the positive and higher CARs of traditional IPOs classified as emerging growth companies.

Authors

• Atul Singh, Ball State University

• Tiffany Westfall, Ball State University