Testing a Fundamental Investment Theory: Effect of C-Suite Operator Experience on SPAC One-Year Abnormal Returns Post-Merger

With the increasing prevalence of SPAC IPOs in the public market, it has become important for the institutional and retail investor alike to better understand the unusual market tool. Current academic literature on SPACs is sparse in comparison to that on traditional IPOs and has done little to investigate what factors may be indicators or determinants of their success. Current fundamental theories have centered on the presence of C-Suite executive operators in a SPAC’s sponsor board as an indicator of future success. Initial evidence on company returns has shown that SPACs with such sponsors seem to outperform other SPACs, the market, and the traditional IPO. However, this study will use a Fama-French Three Factor Model to measure company abnormal returns for a one-year period post-merger and find that the presence of such C-Suite executives as sponsors is insignificant once market factors are controlled for. Further, this study will illustrate how previous misleading results relating to this subject have been produced, and that over the period in which the study was conducted (2016-2021), SPACs have actually produced negative abnormal returns on average for a one-year period post-merger with their target companies. In conclusion, this study finds that while the C-Suite executive does not have a significant effect on company abnormal returns, SPACs with C-Suite sponsors have outperformed those without such sponsors in recent years when measured in holding period returns (as previous studies have found). However, the outperformance of SPACs with C-Suite sponsors is due to strong performance in specific industries that tend to require, or attract, those with previous industry experience, rather than the C-Suite sponsors positively affecting company returns