Are SPAC Revenue Forecasts Informative?

72 Pages Posted: 1 Oct 2021 Last revised: 2 Jun 2022

See all articles by Michael Dambra

Michael Dambra

SUNY at Buffalo - School of Management

Omri Even-Tov

Haas School of Business - UC Berkeley

Kimberlyn George

University of California, Berkeley - Haas School of Business

Date Written: June 2, 2022

Abstract

We examine the informativeness of SPAC revenue forecasts. We find a positive association between the compound annual growth rate in projected revenue forecasts and abnormal returns, retail trading, and Reddit discussion in the five-day window surrounding the merger announcement. In contrast, we find weak evidence that investors and social media respond to historical financial performance measures (or lack thereof) upon the announcement. Further, we find that firms with higher projected revenue have fewer share redemptions. However, we find that higher SPAC revenue forecasts predict post-merger stock and accounting underperformance and litigation. Although revenue forecasts often lose their predictive ability when we simultaneously account for historical revenue information, retail investors and Reddit discussants appear to overlook these measures at the merger announcement. Overall, our results affirm the SEC’s concerns regarding the attractiveness of aggressive revenue projections to retail investors and the insufficient presentation of historical financial information in SPAC transactions.

Keywords: SPACs, Forward-Looking Statements, IPOs, retail investors

JEL Classification: G34, G32, M40, M48

Suggested Citation

Dambra, Michael and Even-Tov, Omri and George, Kimberlyn, Are SPAC Revenue Forecasts Informative? (June 2, 2022). Available at SSRN: https://ssrn.com/abstract=3933037 or http://dx.doi.org/10.2139/ssrn.3933037

Michael Dambra (Contact Author)

SUNY at Buffalo - School of Management ( email )

350 Jacobs Management Center
Buffalo, NY 14260-1660
United States
716-645-3237 (Phone)

Omri Even-Tov

Haas School of Business - UC Berkeley ( email )

Haas School of Business
Berkeley, CA 94720
United States
3104302236 (Phone)

Kimberlyn George

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
2817946040 (Phone)

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