Abstract
Special purpose acquisition companies (SPACs) have emerged as a popular alternative to traditional initial public offerings (IPOs), offering speed, pricing certainty, and flexibility in taking private companies public through de-SPAC transactions. However, SPACs face significantly higher litigation risks than IPOs due to limited regulatory oversight, conflicts of interest, and poor post-merger performance. Using hand-collected data on 2,450 SPACs and 25,879 IPOs from 2013 to 2024, we find that 4.8% of SPACs are sued compared to 0.6% of IPOs. This study investigates the structural factors driving these lawsuits, including weaker disclosure requirements and the use of forward-looking projections permitted under the Private Securities Litigation Reform Act (PSLRA) safe harbor. We employ regression analysis to examine how macroeconomic conditions influence litigation risk. Our findings suggest that enhanced due diligence, stricter disclosure standards, and robust post-merger governance could mitigate these risks, fostering greater investor confidence and market stability. KEYWORDS: SPAC; IPO; litigation risk; securities litigation; macro economy; consumer sentiment. JEL CLASSIFICATION: G14, G18, K22