Disclosure Quality, Litigation Risk, and Regulatory Arbitrage in SPACs

ABSTRACT This paper investigates regulatory arbitrage in going public via SPACs and its implications for disclosure quality and litigation risk. We find that, compared to fundamentally matched IPO peers, SPACs exploit regulatory gaps, resulting in less informative, more optimistic, and overconfident disclosures. These compromised disclosures are associated with a higher likelihood of securities litigation, particularly within the first year post‐merger. Importantly, the elevated risk arises from disclosure practices rather than the SPAC method itself. Our findings provide early benchmarks for evaluating recent reforms and underscore the importance of consistent oversight in investor protection.