Shell games: On the value of shell companies and SPACs – the return following a merger is significantly negative and most shell firms have fewer than three market makers and trading tends to be thin and concentrated among a relatively small shareholder base

  • Based on a sample of 111 SPACs we find that the return following a merger is significantly negative. Evidently, SPAC investors, while protecting themselves from downside risk, are also sacrificing the large potential merger returns that ordinary shells offer.
  • The extent to which shell firms are an investable alternative asset largely depends upon the depth of this rather illiquid market. Most shell firms have fewer than three market makers and trading tends to be thin and concentrated among a relatively small shareholder base.

Earlier PostSpecial Purpose Acquisition Company in Malaysia – Caveat Emptor by LIN Liye

Journal of Corporate Finance

Volume 17, Issue 4, September 2011, Pages 850–867

Shell games: On the value of shell companies 

Ioannis V. Florosa, 1, Travis R.A. Sappb, , 


A reverse merger allows a private company to assume the current reporting status of another company that is public. This can be done quickly, without fundraising, road show, underwriter, substantial ownership dilution, or great expense. Private firms that go public via reverse merger are often motivated by the need to quickly secure financing through privately placed stock (PIPEs) and the desire to make acquisitions using stock as payment. In each of the last eight years reverse mergers have outnumbered traditional IPOs as a mechanism for going public, and reporting shell companies are providing fuel for much of this growth. We study 585 trading shell companies over the period 2006–2008. The purpose of most of these shell firms is to find a suitor for a reverse merger agreement. These companies have no systematic risk, operations, or assets, and their share price tends to decline over time. Yet, these firms have investors. When a takeover agreement is consummated, shell company three-month abnormal returns are 48.1%. We argue that this exceptional return is compensation to investors for shell stock illiquidity and the uncertainty of finding a reverse merger suitor. We show that shell company returns are much greater at the consummation of a merger than those of a similar entity that in dollar terms is more popular among investors — Special Purpose Acquisition Companies (SPACs).


Special Purpose Acquisition Company in Malaysia – Caveat Emptor

Posted by LIN Liye, Year 4 undergrad at the School of Economics, Singapore Management University

Recently, there was a prospective IPO by Red Sena, which is a F&B SPAC led by former Fraser & Neave Holdings Bhd (F&N) chief executive officer (CEO) Datuk Tan Ang Meng. This caught my attention as I was scouring through the net looking for risky corporate structures that could be misused against minority shareholders

Given that there are no assets, nor businesses, nor profits nor cash flows, investors that bought into the IPO are essentially buying into the execution abilities of the management team to acquire companies and build them up, much alike to private equity businesses. To me, I cannot understand why minority investors would want to take so much execution risk, in an unproven entity by a new management team as well. Continue reading

SEC Claws Back Money from Tech CFOs of Saba Software for Accounting Fraud

SEC Claws Back Money from Tech CFOs for Accounting Fraud



Two former CFOs of a Silicon Valley technology company have agreed to return nearly a half-million dollars in bonuses and stock sale profits they received while their company was committing accounting fraud, in a settlement with the Securities and Exchange Commission. William Slater and Peter E. Williams III received $337,375 and $141,992 respectively during time periods when Saba Software presented materially false and misleading financial statements, according to the SEC. Continue reading

Information in Financial Statement Misstatements at the Engagement Partner Level: A Case for Engagement Partner Name Disclosure?

Information in Financial Statement Misstatements at the Engagement Partner Level: A Case for Engagement Partner Name Disclosure?

Wuchun Chi National Chengchi University (NCCU) – Department of Accounting

Ling Lei Lisic George Mason University

Linda A. Myers University of Arkansas
Mikhail Pevzner University of Baltimore – Merrick School of Business
January 2015

Using data from Taiwan where engagement partner names are disclosed and misstatements of clients’ annual financial statements to proxy for audit quality, we examine whether audit quality at the engagement partner level persists, and whether an engagement partner’s reputation for prior audit quality is informative about current audit quality. We find that at the engagement partner level, year t-1 misstatements made by other audit clients predict year t misstatements for clients without a history of misstatements in the preceding three years, but this effect is mitigated by engagement partner experience. In addition, we find a positive association between the incidence of restatements made by an engagement partner’s clients in the previous two or three years and the likelihood that a different client misstates in the current year, suggesting that partner-level restatements provide information about future audit quality. Finally, we find that an engagement partner’s reputation for past client misstatements (as disclosed in restatements) is associated with a higher likelihood of that partner losing existing clients and a lower likelihood of that partner attracting new audit clients. Collectively, our results suggest that engagement partner identification can reveal information that is informative about audit quality and affects stakeholder perceptions of audit quality, providing some support for the Public Company Accounting Oversight Board’s proposal to disclose the names of engagement partners in the U.S.

OW Bunker accounting fraud fallout could lead to exit of Opet Singapore

OW Bunker fallout could lead to exit of Opet S’pore

Platts says S’pore unit closing off positions and settling oustanding payments


11 Feb5:50 AM

THE fallout from the OW Bunker scandal is far from over.

Bunker provider Opet Trade (Singapore) will reportedly soon exit the industry as a result of its large exposure to the Danish marine fuel supplier, which collapsed last November after allegations of fraud hit its Singapore subsidiary, OW Bunker Far East. Continue reading

2014 Booth Laird Investment Partnership Annual Letter: Reflection on the Accounting Fraud of HQS, a company headquartered in Seattle with its primary operations in China

Around this time, we found an obscure company called HQ Sustainable Maritime Industries (HQS), a company headquartered in Seattle with its primary operations in China. HQS was a vertically integrated tilapia producer and specialty healthcare product manufacturer. This time period was before the fraud prevalent in Chinese companies trading on western exchanges came to light. Unlike those frauds, however, HQS was headquartered in Seattle, had Canadian leadership, and was audited by a Canadian firm that was itself under the supervision of the SEC’s audit and accounting regulator, the Public Company Accounting Oversight Board (“PCAOB”). The PCAOB had thoroughly reviewed and approved this Canadian audit firm, giving us false comfort. We had spoken to the VP of Finance at HQS numerous times and even called the auditor to verify that they conducted appropriate audit procedures. Continue reading

At least 70 listed Chinese companies bribe officials by giving them shares, manipulate stock prices and transfer benefits through mergers and acquisitions in the capital market

Guangming Daily Reported at least 70 listed companies have corrupted officials. Many companies and enterprises have served as “money printers and automated teller machines” for corrupt officials. According to Hithink Royalflush Information Network, an online financial information site in Hangzhou, Zhejiang province, out of 70 problem-plagued companies, the largest group consists of 18 in industries such as oil, coal mining and nonferrous metals. Six of the 70 are in the real estate sector and another six are financial companies. Beijing News said listed companies in high-profit and monopoly industries bribe officials by giving them shares, manipulate stock prices and transfer benefits through mergers and acquisitions in the capital market. On Monday, China National Radio reported that the business department handling wine imports at China National Cereals, Oils and Foodstuffs Corp, the country’s largest oil and food importer, spent more than RMB200,000 on wine during a two-day party at a luxu ry hotel in Yunnan province

Seventy Chinese listed firms affected by far-reaching anti-graft campaign so far

Monday, 09 February, 2015, 2:28pm


These firms either lost their top executives or were forced to restructure because of the nationwide fight against corruption

Chinese media has compiled the names of listed companies that lost top executives or underwent restructuring as a result of the country’s far-reaching anti-corruption campaign.

Last year, some 70 listed companies were implicated in President Xi Jinping’s fight after graft, The Beijing Times reported. Many of these firms were under the control of friends of formerly powerful Communist Party officials, it said. Continue reading