SPACs and the Regulation Gap : The Effect of First SEC Intervention

We examine the effect of first official SEC announcement on April 12, 2021, regarding Special Purpose Acquisition Companies (SPACs), which is an alternative mechanism of taking firms public. A prevailing opinion of academics, practitioners, and regulators alike, is that the primary appeal of the SPAC technology is the regulation gap it enjoys compared to its counterparts. If so, a big adverse effect would be expected at the time of the first regulatory intervention. Our results as a whole do not show support for this hypothesis as we find that abnormal returns around the announcement on both SPAC shares and warrants are largely statistically insignificant, although some SPAC characteristics, such as bigger size less time left to complete the transaction and having specified the industry of the potential acquisition target ex-ante, lead to significantly worse returns in a multivariate setting. Interestingly, despite the regulation targeting warrant accounting directly, we find that offering warrants in SPAC units have a positive impact on announcement returns