Market's Reactions to the Acquisition of Special Purchase Acquisition Companies
Creators
- 1. Department of Accountancy, Graduate Institute of Finance, National Cheng Kung University, Tainan, Taiwan
- 2. Department of Finance, Da-Yeh University, Dacun, Changhua 51592, Taiwan
- 3. Department of Accountancy, Graduate Institute of Finance, National Cheng Kung university. Tainan, Taiwan
Description
Abstract: This paper examines the market’s reactions to the announcement of acquisitions in the price of common stock of the special purchase acquisition company (SPAC) to provide insights to investors for the period from 2016-2020. Unlike the previous literature such as Rodrigues and Stegemoller (2014) who find positive abnormal returns around the announcement of SPAC acquisitions, we find that the average SPAC acquisition abnormal returns are negative, although not statistically significant. This sheds light on the dilutive effects of the sponsor’s stake and warrants to be offered. We provide evidence that the number of common stock before the offering and the number of warrants to be offered are negatively associated with the abnormal returns at the SPAC acquisition announcement. Although SPAC sponsors are able to find an undervalued target and create value by monitoring the target, SPAC investors also bear the costs associated with the sponsor’s stake and the warrants offered.
Keywords: SPAC, Event Study, Acquisition
JEL Classification Numbers: G12; G14; G34