The Time to Completion of SPAC Mergers and DeSPAC Performance

60 Pages Posted: 26 Feb 2024 Last revised: 10 Apr 2024

See all articles by Fang Lin

Fang Lin

Pacific Lutheran University

Asif I. Malik

University of Oklahoma - Michael F. Price College of Business

Peter Mueller

Fordham University

Bryan Stanhouse

University of Oklahoma - Michael F. Price College of Business

Xin Yue Zhou

University of Oklahoma - Michael F. Price College of Business

Diego Leal

The University of Texas at El Paso

Date Written: February 14, 2024

Abstract

This paper uses duration analysis to empirically document the relationship between SPAC mergers that take place late in the life of the SPAC and “value destroying” new business combinations. Our investigation is guided by a target acquisition model which provides the optimal minimum value of a potential merger partner. Furthermore, the solution’s comparative static behavior reveals an incentive for sponsors to deviate from their original assurances of target quality to investors. If this misalignment of incentives influences the decision making of managers, it should be reflected in t he data. Our maximum likelihood estimation produces a positively sloped and convex hazard function which documents an enhanced likelihood of an “uncoupled” SPAC merging as maturation threatens. This result suggests that to the detriment of SPAC investors, sponsors have lowered the optimal threshold value of the target to avoid losing their “promote.” To support our prima facia evidence, we examine the statistical relationship between the timing of SPAC mergers and the ROAs for the new business combinations as well as the “buy and hold” common stock returns.

Keywords: Special Purpose Acquisition Corporation, SPAC, Time to Merger, Duration Analysis, First Mover, conflict o f interest

Suggested Citation

Lin, Fang and Malik, Asif I. and Mueller, Peter and Stanhouse, Bryan and Zhou, Xin Yue and Leal, Diego, The Time to Completion of SPAC Mergers and DeSPAC Performance (February 14, 2024). Available at SSRN: https://ssrn.com/abstract=4728121 or http://dx.doi.org/10.2139/ssrn.4728121

Fang Lin

Pacific Lutheran University ( email )

12180 Park Avenue S.
Tacoma, WA 98447
United States

Asif I. Malik

University of Oklahoma - Michael F. Price College of Business ( email )

307 W Brooks
Norman, OK 73019
United States
4056945869 (Phone)

HOME PAGE: http://https://www.ou.edu/price/finance/faculty/currentstudents

Peter Mueller

Fordham University ( email )

33 West 60th Street
New York, NY 10023
United States

HOME PAGE: http://petercmueller.com

Bryan Stanhouse

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

Xin Yue Zhou (Contact Author)

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

Diego Leal

The University of Texas at El Paso ( email )

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