Organizational form and investment decisions: The case of special purpose acquisition companies

This study analyzes a new organizational form, the special purpose acquisition company (SPAC). First, SPACs utilize a variety of mechanisms to curb potential agency costs in ways that are consistent with financial contracting theory. Second, mechanisms actually mitigate the agency costs in the primary investment decision of SPACs, namely acquisitions. Specifically, investors exercise their voting rights to oppose managerial proposals to a much higher degree in the SPAC than in other settings. However, many acquisitions that appear to be value destructive attain approval. Finally, despite this, SPACs on average realize significant and positive acquisition announcement returns of similar magnitudes to existing studies on public acquisitions of private targets. In addition, SPAC shareholders exhibit significantly positive returns over the lifetime of the SPAC investment