Why SPAC Investors Should Listen to the Market

Journal of Applied Finance, Fall/Winter 2011, Volume 21, Issue 2, pp. 38-57

Posted: 8 Aug 2012

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: 2011

Abstract

Special purpose acquisition companies (SPACs) raised over $22bn from investors during the period 2003-2010, representing a significant proportion of US initial public offerings (IPOs). SPACs are interesting structures – providing investors with very low risk options to invest in future acquisitions. However, we show that more than one-half of approved deals immediately destroyed 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: Special purpose acquisition companies (SPACs), Initial public offerings (IPOs), conflicts of interest, market prices

Suggested Citation

Jenkinson, Tim and Sousa, Miguel, Why SPAC Investors Should Listen to the Market (2011). Journal of Applied Finance, Fall/Winter 2011, Volume 21, Issue 2, pp. 38-57. Available at SSRN: https://ssrn.com/abstract=2126226

Tim Jenkinson (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
United Kingdom
+44 1865 288916 (Phone)
+44 1865 288831 (Fax)

HOME PAGE: http://www.sbs.oxford.edu/timjenkinson

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Miguel Sousa

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

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal

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