City Research Online

Abstract

Special Purpose Acquisition Companies (SPACs) have rapidly transformed from a marginal financing tool to a central force in global capital markets, especially during the unprecedented boom of 2020–2021. The first chapter provides a comprehensive and critical overview of SPACs, integrating a detailed exposition of their institutional features with a systematic review of the academic literature. We first trace the historical evolution and operational mechanisms of SPACs, highlighting their unique structure, regulatory environment, and international variations. We then synthesise theoretical and empirical research on SPACs, covering topics such as incentive design, information disclosure, market performance, governance, and the challenges of globalisation and specialisation. By bridging institutional analysis with literature review, this paper not only clarifies how SPACs function in practice but also critically assesses the strengths and limitations of current research. We conclude by identifying key research gaps and proposing future directions, aiming to serve as a foundational reference for scholars, policymakers, and practitioners seeking to understand the evolving role of SPACs in contemporary financial markets.

The second chapter refers to Loughran-McDonald Sentiment Word Lists and applies textual analysis method to investigate the relationship between features (tones, length, readability) extracting from the risk factors section of deSPAC prospectus and deSPAC underpricing. We find 1) deSPAC underpricing is positively affected by the negative, uncertain, weak modal, and constraining tones of the risk factors section of their deSPAC prospectus, while other tones, text length, and readability of the risk factors section have no significant effect. The results remain robust after going through various robustness tests. 2) The positive impact of those four tones affects deSPAC underpricing mainly through two major channels, namely, investors’ cognitive bias at the subjective level and inadequate disclosure of core information at the objective level. 3) Results of Principal Component Analysis show that negative, uncertain, weak-modal, and constraining tones all proxy for the same effect and reflect the same attribute. 4) Generalize the analysis of risk factors section to other sections of the prospectus, we find tones of the risk factors section have a greater impact on deSPAC underpricing than other sections of prospectus and full text. This study contributes to academic by introducing textual analysis into research field of deSPACs and explain deSPAC underpricing by qualitative features of prospectus. Also, we believe that this chapter contributes to financial industry by help investors make investment-decision.

The third chapter examines how the tone in the Management Discussion and Analysis (MD&A) section of S-4 filings influences the deSPAC deal completion return and post deal performance. We find that tone significantly influences deSPAC deal completion return, while its effect on deSPAC post deal performance is not significant. Moreover, the negative tone has a stronger influence on deal completion return compared to the positive tone. We attribute this to the unique characteristics and regulatory environment of SPACs. Negative tone can create a “candor effect”, where the market interprets it as a signal of transparency rather than increased risk. We believe that sponsors play a critical role in mediating this relationship. Sponsors amplify the candor effect of negative tone through the combined effects of reputation, economic incentives, and resource signalling. This chapter extends the existing literature on the value relevance of non-financial features of disclosure, as well as holds significant practical implications for both investors and firms.

Publication Type:	Thesis (Doctoral)
Subjects:	H Social Sciences > HA Statistics H Social Sciences > HF Commerce H Social Sciences > HG Finance
Departments:	Bayes Business School > Bayes Business School Doctoral Theses Bayes Business School > Faculty of Finance Doctoral Theses

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