Disclosure’s Limits

Abstract

The U.S. Securities and Exchange Committee’s (SEC) proposed reforms of how it regulates special purpose acquisition companies (SPACs) lean heavily on the most familiar tool in its arsenal: disclosure. The proposed rules ask for more disclosure, and more standardized disclosure, on a variety of fronts. While as researchers we generally support more disclosure, unfortunately, we are deeply skeptical of the benefits disclosure alone can provide in this particular case to retail investors—the audience to which these reforms are directed. SPACs as currently structured feature a species of empty voting, where a shareholder’s voting interest is decoupled from her economic interest. Because of this fundamental disconnect, which is anathema to corporate law, our research indicates that disclosure-based reforms will be of limited utility in protecting investors.