The Dilutive Nature of Special Purpose Acquisition Companies and the Looming Threat of SEC Regulation

This paper explores the popularity of Special Purpose Acquisition Companies (SPAC) and why the market prefers this alternative method of going public even in the midst of poor stock price performance. The paper also takes a closer look at the dilutive inherent in the current structure of the typical SPAC and compares it to the total cost of a traditional IPO. Results showed that SPACs can bear costs as high as 33%, while a typical traditional IPO costs 25%-27%. The way in which redemption rates emphasize the dilution is also explored empirically through regression analysis to model how redemption rates affect overall stock price performance. The results showed an inverse relationship between redemption rates and positive stock returns. Lastly, the paper explores the benefits that SPACs carry legally in the form of Safe Harbor Protection that makes SPACs even more attractive to the potential target companies and sponsors