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The iSPAC

Author

Listed:
  • Tasawar Nawaz

    (University of Huddersfield)

Abstract

Special purpose acquisition companies (SPACs) are one of the most celebrated investment vehicles in recent years. Relative to traditional IPOs, SPACs are much more cash-strapped and speculative. Resultantly, the scope for SPACs remains sparse for certain segments of the financial system notwithstanding the SPAC euphoria surrounding the financial markets: one notable exception is Islamic banking and finance. The Islamic banking business model is based upon the ethical ontologies and epistemologies – informed by the divine sources of Quran and Sunnah: the Shariah – operating with the mandate to promote socio-economic justice through a fair redistribution of wealth while embargoing speculative trading or investments and adopting a risk-sharing model between economic agents. Unsurprisingly, – owing to the speculative nature of SPACs – the Islamic finance industry remains reluctant to participate in the SPAC-mania despite the frenzy engulfing global securities markets. This work addresses the misaligned incentives inherent in a conventional SPAC structure and proposes alternative SPAC structure terms i.e., the iSPAC, which potentially mitigates the noted misaligned incentives and offers less dilutive SPAC terms to shareholders. Specifically, iSPAC structure terms address the issues of speculation (gharar), information asymmetry, and transparency in the pre-IPO phase, which may lead to adverse selection and moral hazard. Equally, the proposed structure reconciles post-IPO operational and investment-related risks such as the treatment of proceeds, interest rate (riba), opportunity costs, and management costs in consort with unethical behavior i.e. cashing-out opportunities that may lead to uneven redistribution of wealth thereby, widening the socio-economic voids in the society.

Suggested Citation

  • Tasawar Nawaz, 2024. "The iSPAC," Review of Quantitative Finance and Accounting, Springer, vol. 63(1), pages 311-324, July.
    • Handle: RePEc:kap:rqfnac:v:63:y:2024:i:1:d:10.1007_s11156-024-01258-4
    DOI: 10.1007/s11156-024-01258-4
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    References listed on IDEAS

    as
    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.
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    5. 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.
    6. Roszaini Haniffa & Mohammad Hudaib & Tasawar Nawaz, 2022. "The Value of Social Capital for the Success of SPAC IPOs," IJFS, MDPI, vol. 10(2), pages 1-15, May.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Special purpose acquisition companies (SPACs); Speculation; Islamic banking business model; The iSPAC;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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