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Perverse incentives of special purpose acquisition companies, the “poor man's private equity funds”

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  • Dimitrova, Lora

Abstract

Special purpose acquisition companies (SPACs) are an alternative investment, structured as a one-shot private equity (PE) deal. Significant cross-sectional variation exists in SPACs' performance, which can be explained by the strong implicit incentives embedded in contracts. SPAC performance is worse for acquisitions announced near the predetermined two-year deadline, for acquisitions with deferred initial public offering underwriting fees, and for acquisitions with market value close to the required 80% threshold. Also, sponsors' involvement in the merged firm's governance improves long-term performance. This evidence has important implications given SPACs' high popularity in recent years and the new PE industry's trend toward deal-by-deal fund-raising.

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  • Dimitrova, Lora, 2017. "Perverse incentives of special purpose acquisition companies, the “poor man's private equity funds”," Journal of Accounting and Economics, Elsevier, vol. 63(1), pages 99-120.
    • Handle: RePEc:eee:jaecon:v:63:y:2017:i:1:p:99-120
    DOI: 10.1016/j.jacceco.2016.10.003
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    Cited by:

    1. Hyunseok Kim & Jayoung Ko & Chulhee Jun & Kyojik “Roy” Song, 2021. "Going public through mergers with special purpose acquisition companies," International Review of Finance, International Review of Finance Ltd., vol. 21(3), pages 742-768, September.
    2. Blomkvist, Magnus & Vulanovic, Milos, 2020. "SPAC IPO waves," Economics Letters, Elsevier, vol. 197(C).
    3. Huang, Ying Sophie & Guo, Feng & Ma, Lina, 2023. "Do M&A funds create value in Chinese listed firms?," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    4. Papathanasiou, Spyros & Koutsokostas, Drosos & Pergeris, Georgios, 2022. "Novel alternative assets within a transmission mechanism of volatility spillovers: The role of SPACs," Finance Research Letters, Elsevier, vol. 47(PA).
    5. Shen, Huayu & Liang, Yue & Li, Hanwen & Liu, Jie & Lu, Guangxi, 2021. "Does geopolitical risk promote mergers and acquisitions of listed companies in energy and electric power industries," Energy Economics, Elsevier, vol. 95(C).

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    More about this item

    Keywords

    SPACs; Private equity; IPOs; Incentives; Contract design;
    All these keywords.

    JEL classification:

    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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