SPACs

64 Pages Posted: 22 Feb 2021 Last revised: 2 Mar 2021

See all articles by Minmo Gahng

Minmo Gahng

University of Florida - Department of Finance, Insurance and Real Estate

Jay R. Ritter

University of Florida - Department of Finance, Insurance and Real Estate

Donghang Zhang

University of South Carolina

Date Written: January 29, 2021

Abstract

Special Purpose Acquisition Company (SPAC) IPOs boomed starting in 2020. While SPAC IPO investors have earned 9.3% per year, returns for investors in merged companies are more complex. Depending on weighting methods, they have earned -4.0% to -15.6% in the first year on common shares but 15.6% to 44.3% on warrants. We rationalize why certain companies go public via a SPAC merger despite their high costs by identifying the economic roles of SPAC sponsors and investors. Sponsors transfer more than 30% of their compensation to other investors as inducements to complete mergers. SPACs are evolving towards a more sustainable equilibrium.

Keywords: Special Purpose Acquisition Company, SPAC, IPO

JEL Classification: G30,G34,G24

Suggested Citation

Gahng, Minmo and Ritter, Jay R. and Zhang, Donghang, SPACs (January 29, 2021). Available at SSRN: https://ssrn.com/abstract=3775847 or http://dx.doi.org/10.2139/ssrn.3775847

Minmo Gahng

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Jay R. Ritter (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
(352) 846-2837 (Phone)
(352) 392-0301 (Fax)

HOME PAGE: http://https://site.warrington.ufl.edu/ritter

Donghang Zhang

University of South Carolina ( email )

1014 Greene Street
Darla Moore Sch
Columbia, SC SC 29208
United States
8037770242 (Phone)
29208 (Fax)

HOME PAGE: http://https://sc.edu/study/colleges_schools/moore/directory/zhang_donghang.php

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