Not Ready for Prime Time: Financial Reporting Quality After SPAC Mergers

Jaewoo Kim (), Seyoung Park (), Kyle Peterson () and Ryan Wilson ()
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Jaewoo Kim: Lundquist College of Business, University of Oregon, Eugene, Oregon 97403
Seyoung Park: Lundquist College of Business, University of Oregon, Eugene, Oregon 97403
Kyle Peterson: Lundquist College of Business, University of Oregon, Eugene, Oregon 97403
Ryan Wilson: Tippie College of Business, University of Iowa, Iowa City, Iowa 52242

Management Science, 2022, vol. 68, issue 9, 7054-7064

Abstract: We examine the financial reporting quality of special purpose acquisition corporations (SPACs) following a successful merger. We compare a sample of SPACs with completed mergers from 2006 to 2020 to initial public offering (IPO) firms in the same industry covering the same period. Compared with similar IPO firms, SPACs are more likely to restate their financial statements and have internal control weaknesses. We also find that SPACs are more likely to file untimely financial statements, amend previously issued filings, and have comment letters that go more rounds with the Securities and Exchange Commission. This lower reporting quality also results in less informative earnings to investors. Our evidence corroborates concerns from the media, accounting firms, and regulators that SPACs exhibit low financial reporting quality in comparison with IPOs.

Keywords: special purpose acquisition companies; SPAC; financial reporting quality; IPO (search for similar items in EconPapers)
Date: 2022
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