Blank Check IPOs: A Home Run for Management

Abstract

In the last four years, sixty-two blank check companies have raised $4 billion dollars with their IPOs. According to the SEC definition, a Blank Check company is a development stage company that has no specific business plan or purpose, or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, other entity, or person. These companies typically involve speculative investments and often fall within the SEC's definition of "penny stocks" or are considered microcap stocks" even though some of these companies raise more money than a typical standard IPO. In this paper, we document various aspects of these companies and IPOs and analyse the returns earned by shareholders and management, from their issuance date to the post-acquisition date. Our results show that the shareholders of blank check IPOs earned minus 3% annualised abnormal returns, whereas management earned approximately 1900 percent annualised return. It looks like the investors essentially wrote a blank check to management.

Keywords: Blank check, IPO, private equity

JEL Classification: E44, D30