Not Ready for Primetime: Financial Reporting Quality after SPAC Mergers
Forthcoming at Management Science
26 Pages Posted: 20 Apr 2022
Date Written: April 8, 2022
We examine the financial reporting quality of Special Purpose Acquisition Corporations (SPACs) following a successful merger. We compare a sample of SPACs with completed mergers from 2006-2020 to initial public offering (IPO) firms in the same industry covering the same period. Compared to similar IPO firms, SPACs are more likely to restate their financial statements and have internal control weaknesses. We also find that SPACs are more likely to file untimely financial statements, amend previously issued filings, and have comment letters that go more rounds with the SEC. This lower reporting quality also results in less informative earnings to investors. Our evidence corroborates concerns from the media, accounting firms, and regulators that SPACs exhibit low financial reporting quality in comparison to IPOs.
Keywords: Special Purpose Acquisition Companies, SPAC; Financial reporting quality; IPO
JEL Classification: G17
Suggested Citation: Suggested Citation