Investor Reaction to SPACs' Voluntary Disclosures

58 Pages Posted: 16 Sep 2023

See all articles by Vincent Castellani

Vincent Castellani

University at Buffalo (SUNY) - School of Management

Karl A. Muller

Pennsylvania State University - Department of Accounting

K.J. Park

Singapore Management University

Date Written: July 11, 2023

Abstract

SPACs are formed to combine with and provide a private firm public trading status and a capital infusion. Firms that enter the public market through a SPAC combination are believed to possess greater voluntary disclosure discretion than traditional IPOs as they obtain their public trading status through a merger. Consistent with regulators’ concerns, recent research finds that SPACs use this discretion opportunistically by issuing optimistic guidance. This study examines how investors respond to these disclosures. We find that optimistic projections increase retail purchasing, which is higher than that of institutional purchasing. Additionally, we find that investors partially see through the optimism and exit at the redemption date. Furthermore, we find that institutional investors increasingly divest their holdings for combinations with optimistic projections. Investors as a whole, however, fail to see through the optimism, as combinations with optimistic projections considerably underperform in the two years following the combination.

Keywords: voluntary disclosure; SPACs; revenue forecasts; retail investors

JEL Classification: M41

Suggested Citation

Castellani, Vincent and Muller, Karl A. and Park, K.J., Investor Reaction to SPACs' Voluntary Disclosures (July 11, 2023). The Accounting Review, Forthcoming, Singapore Management University School of Accountancy Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4552888

Vincent Castellani (Contact Author)

University at Buffalo (SUNY) - School of Management ( email )

255 Jacobs Management Center
Buffalo, NY 14260
United States
570-687-6166 (Phone)

Karl A. Muller

Pennsylvania State University - Department of Accounting ( email )

Smeal College of Business
384 Business Building
University Park, PA 16802-3306
United States
814-865-0202 (Phone)
814-863-8393 (Fax)

K.J. Park

Singapore Management University ( email )

60 Stamford Road
Singapore 178900
Singapore

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