Are SPAC Revenue Forecasts Informative?

We examine the informativeness of SPAC revenue forecasts. We find a positive association between the compound annual growth rate in projected revenue forecasts and abnormal returns, retail trading, and Reddit discussion in the five-day window surrounding the merger announcement. In contrast, we find weak evidence that investors and social media respond to historical financial performance measures (or lack thereof) upon the announcement. Further, we find that firms with higher projected revenue have fewer share redemptions. However, we find that higher SPAC revenue forecasts predict post-merger stock and accounting underperformance and litigation. Although revenue forecasts often lose their predictive ability when we simultaneously account for historical revenue information, retail investors and Reddit discussants appear to overlook these measures at the merger announcement. Overall, our results affirm the SEC’s concerns regarding the attractiveness of aggressive revenue projections to retail investors and the insufficient presentation of historical financial information in SPAC transactions.

Keywords: SPACs, Forward-Looking Statements, IPOs, retail investors

JEL Classification: G34, G32, M40, M48

Suggested Citation: Suggested Citation

Dambra, Michael and Even-Tov, Omri and Munevar, Kimberlyn, Are SPAC Revenue Forecasts Informative? (June 2, 2022). The Accounting Review, Forthcoming, The Accounting Review, volume 98, issue 7, 2023 [10.2308/TAR-2021-0630], Available at SSRN: https://ssrn.com/abstract=3933037 or http://dx.doi.org/10.2308/TAR-2021-0630