Development of SPAC 3.0: Empirical Evidence on SPAC Performance and Moral Hazard

Sammanfattning: Special purpose acquisition companies (SPACs) are shell companies equipped with money raised in an initial public offering (IPO) to identify and acquire a private target within a specified timeframe. For private targets that acquire public status after a merger with a SPAC, SPACs are a reliable and fast alternative route to access public markets. For public investors, SPACs constitute a single-shot private equity like investment in which they may benefit from the skills and expertise of the usually reputable SPAC management. Nonetheless, existing literature finds that SPACs as an asset class underperform any reasonable benchmark in the long-term. Contributing to the literature about SPAC structure and performance, this thesis sheds light on SPAC mergers as an alternative to IPOs, long-term stock performance of the latest generation of SPACs (SPAC 3.0), and moral hazard in SPACs. Using a proprietary database of SPACs, the thesis finds that SPAC mergers are less subject to common frictions prevalent in traditional IPOs. This indicates that SPAC mergers are an attractive alternative to IPOs, in particular in cold markets. Second, the thesis explores the development of SPACs and hypothesizes that due to the positive evolution of the asset class, SPAC 3.0 perform better than previous SPACs. However, the analysis shows that the long-term underperformance is still present in a similar magnitude. Lastly, the findings indicate that moral hazard caused by extreme incentive structures is a main driver of SPAC underperformance.