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SPACs and the regulation gap: The effect of first SEC intervention on share and warrant returns

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  • Akdoğu, Evrim
  • Simsir, Serif Aziz
  • Meriç Yılmaz, Merve

Abstract

We examine the effect of first official SEC announcement regarding Special Purpose Acquisition Companies (SPACs), which is an alternative mechanism of taking firms public and suggested to enjoy a regulation gap compared to its counterparts. If so, a big adverse effect may be expected at the time of the first regulatory intervention. Our results do not show support for this hypothesis; however, we find that some SPAC characteristics lead to significantly worse returns in a multivariate setting. Interestingly, despite the regulation targeting warrant accounting directly, we find that offering warrants in SPAC units have a positive impact on announcement returns.

Suggested Citation

  • Akdoğu, Evrim & Simsir, Serif Aziz & Meriç Yılmaz, Merve, 2022. "SPACs and the regulation gap: The effect of first SEC intervention on share and warrant returns," Finance Research Letters, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004950
    DOI: 10.1016/j.frl.2022.103316
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    References listed on IDEAS

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    1. Chatterjee, Sris & Chidambaran, N.K. & Goswami, Gautam, 2016. "Security design for a non-standard IPO: The case of SPACs," Journal of International Money and Finance, Elsevier, vol. 69(C), pages 151-178.
    2. James W. Kolari & Seppo Pynnönen, 2010. "Event Study Testing with Cross-sectional Correlation of Abnormal Returns," The Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 3996-4025, November.
    3. Kolb, Johannes & Tykvová, Tereza, 2016. "Going public via special purpose acquisition companies: Frogs do not turn into princes," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 80-96.
    4. Cumming, Douglas & Haß, Lars Helge & Schweizer, Denis, 2014. "The fast track IPO – Success factors for taking firms public with SPACs," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 198-213.
    5. Floros, Ioannis V. & Sapp, Travis R.A., 2011. "Shell games: On the value of shell companies," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 850-867, September.
    6. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
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    Cited by:

    1. Kang, Hyung Cheol & Lee, Sangwon, 2023. "What has been changed in SPAC mergers? Evidence from Korea since their introduction," Finance Research Letters, Elsevier, vol. 56(C).
    2. Dimic, Nebojsa & Goodell, John W. & Piljak, Vanja & Vulanovic, Milos, 2023. "Acquisition determinants of energy SPACs: Reflecting a closed group?," Finance Research Letters, Elsevier, vol. 55(PB).

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    More about this item

    Keywords

    Special Purpose Acquisition Company (SPAC); IPOs; Regulation; Securities Exchange Commission; Event study; New technology;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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