Yale School of Management Paper Argues That SPAC Shareholders Consistently Approve Value-Destroying Transactions

In his October 13, 2008 paper, Stephan Lewellen argues:

"...that Special Purpose Acquisition Companies, or SPACs, represent a new asset class that is fundamentally distinct from other types of publicly traded equities. SPAC shareholders consistently approve value-destroying transactions despite being given voting rights not found in any other U.S. equity instrument, raising important theoretical questions about optimal voting mechanisms.

Furthermore, SPACs' highly predictable lifecycle yields highly predictable returns, with a monthly four-factor portfolio alpha of approximately 3% following the announcement of an acquisition and -2% after an acquisition has been completed. SPACs also frequently trade at a discount to their theoretical lower bound prior to the announcement of an acquisition, implying that the option value of future acquisitions is negative. Finally, SPACs completing an acquisition have a market beta of less than one despite an average leverage multiple of 2.5, yielding new evidence in the debate over the relationship between beta and leverage."

Click here to download the full paper (Click "Download" above the abstract)