SPAC IPOs and Sponsor Network Centrality

59 Pages Posted: 1 Jun 2021 Last revised: 23 Jun 2021

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Fangzhou Lu

The University of Hong Kong - Department of Finance; Massachusetts Institute of Technology (MIT) - Sloan School of Management

Roni Michaely

The University of Hong Kong; ECGI

Shihua Qin

The University of Hong Kong - Faculty of Business and Economics

Date Written: May 29, 2021

Abstract

The structure of a special purpose acquisition company (SPAC) provides a special role for its sponsors. We show that while few characteristics can explain SPACs' returns, sponsors' connections and network, measured by their centrality, explain a large portion of return variation in the cross-section. A one standard deviation increase in sponsors' network centrality leads to a 3.7% higher merger and acquisition success probability and a 2.1% higher post-merger monthly abnormal return. We attribute this outperformance of firms with high network centrality to superior deal sourcing and fundraising abilities. Overall, we show that the network connections of the SPAC management teams can add value to SPACs' deals despite the general underperformance of SPACs after business combinations.

Keywords: IPO, Special Purpose Acquisition Company, Network Centrality, SPAC

JEL Classification: G24, G34, D85

Suggested Citation

Lin, Chen and Lu, Fangzhou and Michaely, Roni and Qin, Shihua, SPAC IPOs and Sponsor Network Centrality (May 29, 2021). Available at SSRN: https://ssrn.com/abstract=3856181 or http://dx.doi.org/10.2139/ssrn.3856181

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Fangzhou Lu (Contact Author)

The University of Hong Kong - Department of Finance ( email )

Pokfulam
Hong Kong

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Roni Michaely

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Shihua Qin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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