Blinded by the Light? Analyzing Celebrity Endorsements in Special Purpose Acquisition Companies.

Because of digitalization and easy access to online brokers, financial markets have increasingly become the focus of lay investors. However, without professional investment experience, lay investors face distinct information asymmetries when they must assess the quality of an investment opportunity. Celebrities—individuals with broad audiences and public awareness—can take advantage of this condition and disseminate selective information about investment opportunities in which they have often invested themselves. Celebrity endorsements in financial products have been especially evident in the case of special purpose acquisition companies (SPACs), which has moved the US Securities and Exchange Commission to issue an alert to investors. The authors pick up on this warning and analyze the effect of celebrity endorsements of SPACs on stock performance and free float. They find that celebrity SPACs underperform noncelebrity SPACs. Furthermore, their results show that the SPACs that celebrities promote with high-level media coverage on social networks perform the worst but, at the same time, report the largest free float. [ABSTRACT FROM AUTHOR]