Signing blank checks: The roles of disclosure and reputation in the face of limited information
55 Pages Posted: 1 Oct 2021 Last revised: 29 Aug 2022
Date Written: August 24, 2022
Abstract
We examine the roles of disclosure and manager reputation in raising capital when there is no commercial substance underlying the investment. Special Purpose Acquisition Companies (SPACs or “blank check” companies) do not have operations or substantive assets at IPO but promise to use the funds raised to acquire a private firm, generally within two years. It is unclear how SPACs attract investors given the lack of information and historically poor performance. While disclosure is important in traditional IPOs, the incentives and information available differ for SPACs. Nonetheless, we find disclosures are useful to investors, though differently than for traditional IPOs. We also consider manager reputation, as SPACs allow for identification of the manager separately from the entity. Specifically, we find SPAC and CEO experience, and celebrity status are associated with capital raised. Even when an investment lacks commercial substance, disclosure, along with reputation, play important roles in investing decisions.
Keywords: Disclosure, Managerial reputation, SPAC, Special purpose acquisition companies, IPO
JEL Classification: G24, G34, M41, M50
Suggested Citation: Suggested Citation