Investor Reaction to SPACs’ Voluntary Disclosures

SPACs are formed to combine with and provide a private firm public trading status and a capital infusion. Firms that enter the public market through a SPAC combination are believed to possess greater voluntary disclosure discretion than traditional IPOs as they obtain their public trading status thr...

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Bibliographic Details
Published in:The Accounting review 2024-01, Vol.99 (1), p.105-137
Main Authors: Castellani, Vincent, Muller, Karl A., Park, K. J.
Format: Article
Language:English
Subjects:
Closely held corporations
Financial disclosure
Institutional investments
Investor behavior
Optimism
Projections
Purchasing
Redemption
Special purpose acquisition companies
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Summary:SPACs are formed to combine with and provide a private firm public trading status and a capital infusion. Firms that enter the public market through a SPAC combination are believed to possess greater voluntary disclosure discretion than traditional IPOs as they obtain their public trading status through a merger. Consistent with regulators’ concerns, recent research finds that SPACs use this discretion opportunistically by issuing optimistic guidance. This study examines how investors respond to these disclosures. We find that optimistic projections increase retail purchasing, which is higher than that of institutional purchasing. Additionally, we find that investors partially see through the optimism and exit at the redemption date. Furthermore, we find that institutional investors increasingly divest their holdings for combinations with optimistic projections. Investors as a whole, however, fail to see through the optimism, as combinations with optimistic projections considerably underperform in the two years following the combination. Data Availability: All data are publicly available from the sources identified in the text. JEL Classifications: M41.
ISSN:0001-4826
1558-7967
DOI:10.2308/TAR-2022-0003