The Ups and Downs of SPACs - An analysis of abnormal returns for recent SPACs during its different stages

Abstract: As Special Purpose Acquisition Companies (SPACs) are becoming the increasingly popular method of taking a company public, the lack of research on abnormal returns for this asset class since its introduction to the major exchanges validates a reason to expand the investigation. This thesis examines the potential abnormal returns found in different stages of recent SPACs lifecycle, dividing the SPACs into its three major events. 1. The SPAC IPO, 2. The Definitive Agreement (DA) 3. The Merger. Event studies are then used to calculate abnormal returns both for short-term (Cumulative Abnormal Returns) and long-term (Buy-and-hold Abnormal Returns) around, between, and after the DA and the merger event. Additional focus is put on analyzing the period between the DA and the merger. The significance of the abnormal returns is then tested using T-tests and Wilcoxon signed rank test. The data sample for the paper includes 96 still active SPACs that completed their merger between the start of 2019 to February 11th, 2021. The results indicate positive abnormal returns after the DA in the short term and negative abnormal returns after the merger in the long run which is in line with previous studies. When analyzing the long-term returns between the DA and the merger, increasingly positive abnormal returns are found up until around 60 days post DA where it then starts to decline. This result is then further investigated by dividing the SPACs into two groups depending on how quickly they complete the merger after the DA. A two-sample t-test reports a significant difference between the means of the two groups and suggests that the faster group performs better both in the short term and the long term from the DA.