Topic: The Incentives of SPAC Sponsors
Speaker: Wenyu Wang, Associate Professor of Finance, Indiana University
Time: 10:00am-11:30pm, September 28 (Beijing Time)
The market of Special Purpose Acquisition Companies (SPACs) has exploded in recent years, yet its volatile performance calls into question the implications of the unique business model and particularly the incentives of the SPAC sponsors on the welfare of retail SPAC investors. This paper quantitatively studies these questions by estimating a model featuring the strategic interactions between SPAC sponsors, targets, and investors. The estimation uses a comprehensive hand-collected dataset of all SPACs registered to go public between 2009 and 2020 with rich information such as sponsor concessions, earnouts, redemptions, etc. Agency costs appear to be pervasive: on average, there is an 18% difference in expected returns between deals in the bottom quintile of agency costs and those in the top quintile. The average SPAC investor also makes imperfect inferences of the underlying deal value, leading them to earn a 4.3% lower return. These results shed light on the ongoing debate over the viability and validity of the SPAC as an alternative to the traditional IPO, as well as the risks that retail investors may be exposed to when investing in SPACs.