Retail Investors and the Going Public Decision: SPACs vs. IPOs

We study retail investment interest in SPACs. This is the first paper to document individual investor trading activity following a firm’s IPO or a de-SPAC merger. SPACs provide the opportunity for retail investors to purchase shares of newly public companies at the same price as institutional investors, which is unattainable in a traditional IPO. SPAC shares have an implicit lower bound on its value, given that they can be redeemed prior to the de-SPAC event. Our results show that retail investor interest in SPACs is weak before target announcement but rises quickly afterward and is sustained beyond the de-SPAC merger’s completion. We find that retail investor interest is not impacted by the going-public method (de-SPAC vs. IPO), even though de-SPAC firms tend to be younger and have lower funding liquidity before going public. Our analysis contributes to the going-public literature as well as the literature on retail investors.