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arXiv · 2211.16643

Security Issuance, Institutional Investors and Quid Pro Quo

Gaurab Aryal·Zhaohui Chen·Yuchi Yao·Chris Yung
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Abstract

Securities issuance through intermediaries is subject to agency problems and informational frictions. We examine these effects using SPAC data. We identify ``premium'' investors whose participation is linked to lower liquidation risk, higher returns, and lower redemption rates, consistent with both informational rents and agency frictions. In contrast, ``non-premium'' investors engage in non-agency quid pro quo relationships. Specifically, they receive high returns from an intermediary (quid) in exchange for a tacit agreement to participate in weaker future deals (quo). These relationships serve as insurance for issuers and intermediaries, enabling more issuers to access markets.

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Gaurab Aryal, Zhaohui Chen, Yuchi Yao, Chris Yung. 2022-11-30. Security Issuance, Institutional Investors and Quid Pro Quo. https://arxiv.org/abs/2211.16643

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