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How do SPACquisitions Perform?: Empirical Evidence on Post-Merger Performance in SPAC 3.0

Wikman, Rune Nicholas Christoffer LU and Yang, Jie LU (2021) BUSN79 20211
Department of Business Administration
Abstract
Special Purpose Acquisition Companies (“SPACs”) provide targets with an alternative route to the public markets and have grown significantly in popularity in recent years. The existing literature on SPAC performance, which predominantly examines the previous generation of SPACs (pre-2010), reveals that the market tends to react positively to acquisition announcement, while post-merger performance tends to be poor on average. Since then, much has changed: the SPAC market has boomed, and new stakeholders have begun to take an interest in SPACs. This paper aims to find out how the latest generation of SPACs are performing and whether explanations and theories for performance patterns found in previous research still hold. To find out, we... (More)
Special Purpose Acquisition Companies (“SPACs”) provide targets with an alternative route to the public markets and have grown significantly in popularity in recent years. The existing literature on SPAC performance, which predominantly examines the previous generation of SPACs (pre-2010), reveals that the market tends to react positively to acquisition announcement, while post-merger performance tends to be poor on average. Since then, much has changed: the SPAC market has boomed, and new stakeholders have begun to take an interest in SPACs. This paper aims to find out how the latest generation of SPACs are performing and whether explanations and theories for performance patterns found in previous research still hold. To find out, we apply a quantitative method that involves an event study, multiple regression, and Lasso regression. For a sample of 92 SPACs that announced and completed a merger in the U.S. between 2010-01-01 to 2021-04-08, our study was able to find empirical evidence for both the existence of positive acquisition announcement returns and for poor post-merger performance. In addition, we find that the degree of underperformance tends to increase if underwriters defer a large fraction of their total compensation, and that late mergers perform better on average. Furthermore, we find that greater SPAC sponsor and target insider involvement in the de-SPAC firm is associated with better post-merger performance. Finally, our robustness tests reveal that our findings are sensitive to the choice of benchmark, which causes us to issue a warning to other researchers to be careful with the choice of such in future SPAC performance studies. (Less)
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author
Wikman, Rune Nicholas Christoffer LU and Yang, Jie LU
supervisor
organization
course
BUSN79 20211
year
type
H1 - Master's Degree (One Year)
subject
keywords
Special Purpose Acquisition Company, SPAC, Post-merger performance, Moral hazard, Initial Public Offering, Double Selection Lasso
language
English
id
9058119
date added to LUP
2021-09-22 16:09:58
date last changed
2021-09-22 16:09:58
@misc{9058119,
  abstract     = {{Special Purpose Acquisition Companies (“SPACs”) provide targets with an alternative route to the public markets and have grown significantly in popularity in recent years. The existing literature on SPAC performance, which predominantly examines the previous generation of SPACs (pre-2010), reveals that the market tends to react positively to acquisition announcement, while post-merger performance tends to be poor on average. Since then, much has changed: the SPAC market has boomed, and new stakeholders have begun to take an interest in SPACs. This paper aims to find out how the latest generation of SPACs are performing and whether explanations and theories for performance patterns found in previous research still hold. To find out, we apply a quantitative method that involves an event study, multiple regression, and Lasso regression. For a sample of 92 SPACs that announced and completed a merger in the U.S. between 2010-01-01 to 2021-04-08, our study was able to find empirical evidence for both the existence of positive acquisition announcement returns and for poor post-merger performance. In addition, we find that the degree of underperformance tends to increase if underwriters defer a large fraction of their total compensation, and that late mergers perform better on average. Furthermore, we find that greater SPAC sponsor and target insider involvement in the de-SPAC firm is associated with better post-merger performance. Finally, our robustness tests reveal that our findings are sensitive to the choice of benchmark, which causes us to issue a warning to other researchers to be careful with the choice of such in future SPAC performance studies.}},
  author       = {{Wikman, Rune Nicholas Christoffer and Yang, Jie}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{How do SPACquisitions Perform?: Empirical Evidence on Post-Merger Performance in SPAC 3.0}},
  year         = {{2021}},
}