Should SPAC Forecasts be Sacked?

59 Pages Posted: 1 Oct 2021 Last revised: 10 Feb 2022

See all articles by Michael Dambra

Michael Dambra

SUNY at Buffalo - School of Management

Omri Even-Tov

Haas School of Business - UC Berkeley

Kimberlyn George

University of California, Berkeley - Haas School of Business

Date Written: January 24, 2022

Abstract

Companies that go public through a special purpose acquisition company (SPAC) are merger targets of an already-public firm, and as such, their forward looking statements (FLS) are protected under the Private Securities Litigation Reform Act. In this paper, we study the characteristics of and investor responses to SPAC targets’ revenue forecasts. We show that higher revenue growth projections are more likely to be optimistically biased. We also document a positive association between the compound annual growth rate in projected revenue and both market returns and abnormal retail trading during the five-day event window around the investor presentation. Last, we show that the stocks of firms with high projections underperform stocks of comparable firms during the two-year span following the SPAC merger. Overall, our results attest to the recent concerns expressed by both the SEC and the financial press, that SPAC firms’ aggressive revenue projections attract retail investors, who end up faring worse on their investment.

Keywords: SPACs, financial projections, IPOs, retail investors

JEL Classification: G34, G32, M40, M48

Suggested Citation

Dambra, Michael and Even-Tov, Omri and George, Kimberlyn, Should SPAC Forecasts be Sacked? (January 24, 2022). Available at SSRN: https://ssrn.com/abstract=3933037 or http://dx.doi.org/10.2139/ssrn.3933037

Michael Dambra (Contact Author)

SUNY at Buffalo - School of Management ( email )

350 Jacobs Management Center
Buffalo, NY 14260-1660
United States
716-645-3237 (Phone)

Omri Even-Tov

Haas School of Business - UC Berkeley ( email )

Haas School of Business
Berkeley, CA 94720
United States
3104302236 (Phone)

Kimberlyn George

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
2817946040 (Phone)

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