Why SPAC Investors Should Listen to the Market

21 Pages Posted: 24 Nov 2015

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: November 16, 2015

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.

Suggested Citation

Jenkinson, Tim and Sousa, Miguel, Why SPAC Investors Should Listen to the Market (November 16, 2015). Journal of Applied Finance (Formerly Financial Practice and Education), Vol. 21, No. 2, 2011, Available at SSRN: https://ssrn.com/abstract=2691586

Tim Jenkinson (Contact Author)

University of Oxford - Said Business School ( email )

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

European Corporate Governance Institute (ECGI)

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

Miguel Sousa

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

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Porto, 4200-464
Portugal

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