A Story on Spacs

Lakicevic, Milan and Vulanovic, Milos (2012): A Story on Spacs.

Abstract

We study characteristics of Specified Purpose Acquisition Companies (SPACs) and examine the performance of their securities over time. We find that SPACs represent a fairly unique way to raise capital. The incentives of their founders, underwriters, and investors are interdependent and successful business combinations generally result in significant returns to founders. We also show that different SPAC securities generate different reactions in response to the announcement news regarding their corporate status. While holders of all three securities realize abnormal returns on the announcement day, the strongest reaction is observed among the investors holding warrants, while common stock holders tend to react very mildl

• Item Type: MPRA Paper
• Language: English
• Keywords: SPAC; SPACs; Specified Purpose Acquisition Companies; Blank Checks; Private Equity; Venture Capital
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies

References

Aggarwal, Reena, 2000, “Stabilization activities by underwriters after IPOs.” Journal of Finance 55, 1075–1103.

Andrade, Gregor, Mark Mitchell, and Erik Staffors, 2001, “New evidence and perspectives on mergers”, Journal of Economics Perspectives 15, 103 – 120.

Boyer, C. and G. Baigent, 2008, “SPACs as Alternative Investments: An Examination of Performance and Factors that Drive Prices.” Journal of Private Equity (Summer 2008), 11.

Brown, S. and J. Warner, 1985, “Using daily stock returns: The case of event studies.” Journal of Financial Economics 14, 3-31.

Cowing, Cedric B. "Market Speculation in the Muckraker Era: The Popular Reaction.", 1957, Business History Review 31(4): 403-413.

Floros, Ioannis V. 2008. “Two Essays on Alternative Mechanisms to Going Public.” Ph.d Thesis, University of Pittsburgh.

Graham, B. and Dodd, D, 1937, Security Analysis. New York: McGraw Hill,

Jenkinson, T., Sousa, M, 2009, “Why SPAC investors should listen to the market.” Working Paper,Oxford University.

Jog, V. and Sun, C, 2007, “Blank Check IPOs: A Home Run for Management.” Working Paper, Carleton University.

Lewellen, S, 2008, “SPACs as an asset class.” Working Paper, Yale University

Ljungqvist, A, 2007, “IPO underpricing,” in: B.E. Eckbo (ed.), Handbook of Corporate Finance, North-Holland.

Ritter, J. “Some Factoids About the 2008 IPO Market “Working Paper, University of Florida.

Liu, Xiaoding, and Jay R. Ritter, 2010a, The Economic Consequences of IPOs Spinning, Review of Financial Studies 23, 2024-2059

Liu, Xiaoding, and Jay R. Ritter, 2010b, Local Underwriter Oligopolies and IPOs Underpricing, Forthcoming, Journal of Financial Economics.

Riemer, S. Daniel “Special Purpose Acquisition Companies: Spac and Span or Blank Check Redux?” Washington University Law Review, Volume 85, Number 4, 2007, 931. 37

Sjostrom, William K. “The Truth About Reverse Mergers.” Entrepreneurial Business Law Journal2, 2008.

Tran, Anh, 2009 “ Blank Check Acquisitions” Ph.d Thesis , Drexel University

Travlos, Nickolas, 1987, “ Corporate takeover bids, method of payment and bidding firm’s stock returns”, Journal of Finance 42, 943 -963