Perverse Incentives of Special Purpose Acquisition Companies, the 'Poor Man’s Private Equity Funds'

56 Pages Posted: 1 Sep 2012 Last revised: 13 Oct 2016

Date Written: October 12, 2016

Abstract

Special purpose acquisition companies (SPACs) are an alternative investment, structured as a one-shot private equity (PE) deal. Significant cross-sectional variation exists in SPACs' performance, which can be explained by the strong implicit incentives embedded in contracts. SPAC performance is worse for acquisitions announced near the predetermined two-year deadline, for acquisitions with deferred initial public offering underwriting fees, and for acquisitions with market value close to the required 80% threshold. Also, sponsors' involvement in the merged firm's governance improves long-term performance. This evidence has important implications given SPACs' high popularity in recent years and the new PE industry's trend toward deal-by-deal fund-raising.

Keywords: SPACs, Private equity, IPOs, Incentives, Contract design

JEL Classification: G29, G34

Suggested Citation

Dimitrova, Lora, Perverse Incentives of Special Purpose Acquisition Companies, the 'Poor Man’s Private Equity Funds' (October 12, 2016). Journal of Accounting & Economics (JAE), Vol. 63, No. 1, 2017 Forthcoming, Available at SSRN: https://ssrn.com/abstract=2139392 or http://dx.doi.org/10.2139/ssrn.2139392

Lora Dimitrova (Contact Author)

University of Exeter ( email )

Northcote House
The Queen's Drive
Exeter, Devon EX4 4QJ
United Kingdom

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