SPACs and the regulation gap: The effect of first SEC intervention on share and warrant returns

Abstract

We examine the effect of first official SEC announcement regarding Special Purpose Acquisition Companies (SPACs), which is an alternative mechanism of taking firms public and suggested to enjoy a regulation gap compared to its counterparts. If so, a big adverse effect may be expected at the time of the first regulatory intervention. Our results do not show support for this hypothesis; however, we find that some SPAC characteristics 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.