Academic Events

Prof. Grace Xing Hu

PBC School of Finance

Tsinghua University

At the time of IPO, Special Purpose Acquisition Companies (SPACs) are not backed by any

operating businesses and thus have virtually no fundamentals. Exploiting this unique feature, we examine the role of non-fundamental information disclosure from the perspectives of both firms and investors. To guide our analysis, we develop a simple theoretical framework that models the incentives and consequences of non-fundamental disclosure in SPAC IPOs and yields testable predictions. Consistent with the model, our empirical analysis shows that low-capability SPAC sponsors tend to adopt a more positive tone in IPO prospectuses to attract investor capital. This strategic use of optimistic tone, however, predicts weaker SPAC performance: lower deal completion rates, longer time to complete deals, higher redemption rates, and weaker post-IPO returns. Sponsors who strategically inflate disclosure tone face higher redemption risk, which often necessitates costly external PIPE financing following the merge announcement. These results highlight the strategic role of tone management in corporate disclosure and its economic tradeoff between short-term financing incentives and long-term capital costs.