SPACs

69 Pages Posted: 22 Feb 2021 Last revised: 14 Dec 2021

See all articles by Minmo Gahng

Minmo Gahng

University of Florida - Department of Finance, Insurance and Real Estate

Jay R. Ritter

University of Florida - Department of Finance, Insurance and Real Estate

Donghang Zhang

University of South Carolina

Date Written: January 29, 2021

Abstract

Special Purpose Acquisition Company (SPAC) IPO investors have earned annualized returns of 15.9%, while investors for the merged companies have earned -8.1% in the first year on common shares but 68.0% on warrants. We rationalize why certain companies go public via a SPAC merger despite their high costs. We identify the economic roles of SPAC sponsors and investors, and analyze the agency problems that certain SPAC features address. To complete mergers, sponsors frequently forfeit a significant part of their shares and warrants, often transferring them to investors as inducements. SPACs are evolving towards a more sustainable equilibrium.

Keywords: Special Purpose Acquisition Company, SPAC, IPO

JEL Classification: G30,G34,G24

Suggested Citation

Gahng, Minmo and Ritter, Jay R. and Zhang, Donghang, SPACs (January 29, 2021). Available at SSRN: https://ssrn.com/abstract=3775847 or http://dx.doi.org/10.2139/ssrn.3775847

Minmo Gahng

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Jay R. Ritter (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
(352) 846-2837 (Phone)
(352) 392-0301 (Fax)

HOME PAGE: http://https://site.warrington.ufl.edu/ritter

Donghang Zhang

University of South Carolina ( email )

1014 Greene Street
Darla Moore Sch
Columbia, SC SC 29208
United States
8037770242 (Phone)
29208 (Fax)

HOME PAGE: http://https://sc.edu/study/colleges_schools/moore/directory/zhang_donghang.php

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