Information production in start-up firms: SPACs vs. Traditional IPOs

We explore equilibrium allocation and efficiency when private firms are listed by merging with a Special Purpose Acquisition Company (SPAC), compared with when they are listed through a traditional initial public offering (IPO). We show that a traditional IPO is more informationally efficient than a SPAC, except if the traditional IPO process is significantly long and costly. We also suggest that if the average quality of firms willing to go public decreases, SPAC acquisitions are more likely to occur than traditional IPOs. Our results hold, regardless of whether the measures of underwriters and sponsors are exogenously or endogenously determined.