Prof. Debarshi Nandy is the Barbara and Richard M. Rosenberg Professor of Global Finance at the International Business School of Brandeis University. Detailed profile can be found at here.
International Business School of Brandeis University
January 15, 2024
Retail Investors in SPACs vs. IPOs.
Special Purpose Acquisition Companies (SPACs) provide the opportunity for retail investors to potentially purchase shares of newly public companies at the same price as institutional investors, which is generally unattainable in a traditional IPO. This paper studies the timing of retail investments in SPAC-related securities and the investment outcome. Retail interest in SPACs is weak before the deSPAC merger target announcement but rose quickly and strongly after the target announcement and sustained beyond the deSPAC merger completion. While SPAC common shares outperform the market after the target announcement, they generate larger losses on average after the target firm goes public, relative to firms going public via IPOs. Compared to IPO firms, deSPAC firms tend to be younger, VC-backed, and have lower current ratios before going public. The popularity of SPACs among retail investors is driven by return volatility following the target announcement and less so by target firm characteristics or SPAC IPO features. Compared to IPO firms, deSPAC firms are more likely to attract investors when their stock has high volatility.
