How Differences in IPO and SPAC Regulation Impact Performance
Open Access
- Author:
- Hu, Emily
- Area of Honors:
- Finance
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Jason Lunn, Thesis Supervisor
Brian Spangler Davis, Thesis Honors Advisor - Keywords:
- Initial Public Offering (IPO)
Special Purpose Acquisition Company (SPAC) - Abstract:
- The purpose of this paper is to more deeply understand the broader implications of regulations on the performance of Initial Public Offerings (IPO) and Special Purpose Acquisition Companies (SPAC). The Securities and Exchange Commission (SEC) refers to SPACs as a company “that has: (1) indicated that its business plan is to: (i) conduct a primary offering of securities…(ii) complete a business combination…with one or more target companies within a specified time frame…or (2) represented that it pursues or will pursue a special purpose acquisition company strategy” (Securities and Exchange Commission 2024). This paper focuses on the first definition regarding a business combination (called a de-SPAC transaction, or de-SPAC) and discusses the issuance and performance history of the SPAC market, the subsequent de-SPAC transaction, and the possible impacts that a lack of regulation has on SPACs and de-SPACs relative to IPOs. The data aspect of this paper is centered around using a three-year time frame, beginning on the first trading day of 2021 and ending on the last trading day of 2023, to compare issuance and performance data across the IPO and SPAC markets, and specifically, the IPXO Index, SPAC Index, and De-SPAC Index. Additionally, this paper involves an analysis of the regulatory aspect of IPOs and SPACs, including their differing requirements and the most recent SEC revisions related to SPACs and de-SPACs. In conclusion, an analysis of the performance data proved that IPOs generally performed better than SPACs and de-SPACs, and overall, IPOs appeared to be a better option for a company’s stock in the long-term. An analysis of the regulations suggested that a lack of regulation or less strict regulation surrounding SPACs and de-SPACs causes them to outperform in the short-term but underperform in the long-term.