Why SPAC Investors Should Listen to the Market

35 Pages Posted: 12 Feb 2009 Last revised: 17 Mar 2009

See all articles by Tim Jenkinson

Tim Jenkinson

University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Miguel Sousa

School of Economics and Management, University of Porto

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Date Written: February 12, 2009


Special purpose acquisition companies (SPACs) have raised around $22bn from investors since 2003, and comprised 20% of total funds raised in US IPOs in 2007. SPACs are interesting structures - allowing investors a risk-free option to invest in a future acquisition. However, we show that more than one-half of approved deals immediately destroy value. Investors, who can observe the market's view of the proposed deal, as well as that of the founders, should listen to the market, since the extreme incentives faced by the SPAC founders create corresponding conflicts of interest. We propose a simple, observable rule - based on market prices - which investors should heed.

Keywords: SPACs, cash shells, IPOs, private equity

JEL Classification: G14, G34

Suggested Citation

Jenkinson, Tim and Sousa, Miguel, Why SPAC Investors Should Listen to the Market (February 12, 2009). EFA 2009 Bergen Meetings Paper, AFA 2010 Atlanta Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1341771 or http://dx.doi.org/10.2139/ssrn.1341771

Tim Jenkinson (Contact Author)

University of Oxford - Said Business School ( email )

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European Corporate Governance Institute (ECGI)

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Miguel Sousa

School of Economics and Management, University of Porto ( email )

Rua Roberto Frias
Porto, 4200-464

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