Investors lose when investing in “blank check” SPACs

Study sheds light on Wall Street’s hot trend

BUFFALO, NY — The more revenue growth a company projects when it announces it will be acquired by a special acquisition company (SPAC), the more investors buy into SPAC stock — and the less likely those projections are to achieve, according to new research from the University at Buffalo School of Management.

The project is one of the first large-scale studies of revenue forecasts that PSPC target companies disclose in their investor presentations.

“Due to litigation issues, companies that go public through a traditional initial public offering (IPO) cannot provide forward-looking information to investors, but SPAC acquisitions are subject to different regulations that allow them to make projections. finance,” says Michael Dambra, PhD, associate professor of accounting and law at the UB School of Management.

“Practitioners, regulators and the media have all expressed concern about the economic consequences of forward-looking statements by highly speculative newly listed companies,” Dambra continues. “But previously, there was little evidence on how often such disclosures occur or whether financial markets find such statements informative. Our study fills this gap.

SPACs are blank check “front companies” that raise capital to acquire a private company, a transaction known as a de-SPAC. Over the past two years, the number of SPAC IPOs has more than doubled compared to traditional IPOs.

Researchers analyzed manually collected data on financial projections for 142 SPAC transactions from 2010 to 2020. They found that more than 90% of SPAC goals provide at least a financial forecast, with revenue being the most commonly projected metric. .

The study showed that when SPAC target companies make extreme revenue projections, capital markets react favorably and the company attracts retail investors. But once the company enters the public market, it significantly underperforms its projections and its peers.

Based on their findings, the researchers say investors should be wary of forecasts included in SPAC merger announcements.

“Companies that go public through a PSPC acquisition exploit safe harbor provisions and provide misleading projections to attract investment, especially from retail investors,” Dambra says. “These companies are more likely to destroy long-term shareholder value, echoing the concerns of regulators and academics that such lax regulations give companies the license to lie.”

Dambra collaborated on the study with Omri Even-Tov, PhD, assistant professor of accounting; and Kimberlyn George, Ph.D., both from the University of California Berkley Haas School of Business.

The UB School of Management is recognized for its emphasis on real-world learning, community and economic impact, and the global perspective of its faculty, students, and alumni. The school has also been ranked by Bloomberg Businessweek, Forbes, and US News & World Report for the quality of its programs and the return on investment it offers its graduates. For more information about the UB School of Management, visit

Robert D. Coleman