Publications
Publications
- 2023
Segmented Going-Public Markets and the Demand for SPACs
By: Angela Ma, Miles Zheng and Jessica Bai
Abstract
We provide a regulatory-arbitrage-based explanation for the origin and proliferation of the Special Purpose Acquisition Company (SPAC). SPAC sponsors act as non-bank intermediaries, and the SPAC market structure appeals to yield-seeking investors and riskier, high-growth issuers overlooked by downside-averse bank underwriters. Data from 2003-2020 support these predictions. SPAC firms are smaller, younger, and riskier than traditional IPO firms but grow revenue at higher rates after going public. Equity market investor sentiment strongly predicts SPAC capital raises relative to traditional IPOs. Finally, a difference-in-differences analysis shows that an increase in IPO litigation risk generates a shift towards SPACs.
Keywords
Special Purpose Acquisition Companies; Non-bank Intermediaries; Regulatory Arbitrage; Adverse Selection; Initial Public Offering
Citation
Ma, Angela, Miles Zheng, and Jessica Bai. "Segmented Going-Public Markets and the Demand for SPACs." Working Paper, 2023.