Security Issuance, Institutional Investors and Quid Pro Quo

49 Pages Posted: 15 Dec 2022 Last revised: 10 Apr 2024

See all articles by Gaurab Aryal

Gaurab Aryal

Washington University in St. Louis

Zhaohui Chen

University of Virginia - McIntire School of Commerce

Yuchi Yao

Simon Business School, University of Rochester

Chris Yung

University of Virginia - McIntire School of Commerce

Date Written: November 29, 2022

Abstract

Security issuance through intermediaries is subject to informational and agency-related frictions. However, separating their effects on securities has been difficult. We estimate those effects separately using SPAC data. To that end, we identify “premium” investors who produce value-relevant information. Their participation is associated with lower liquidation risk and higher returns. In contrast, “non-premium” investors engage only in quid pro quo arrangements. They receive high returns from an intermediary (quid) for participating in weaker future deals initiated by that intermediary (quo). Thus, quid pro quo is not pure agency cost; it includes transfers enabling more firms to go public.

Keywords: Security Issuance, Institutional Investors, SPAC, Underpricing

JEL Classification: G14, G32, G34

Suggested Citation

Aryal, Gaurab and Chen, Zhaohui and Yao, Yuchi and Yung, Chris, Security Issuance, Institutional Investors and Quid Pro Quo (November 29, 2022). Available at SSRN: https://ssrn.com/abstract=4288999 or http://dx.doi.org/10.2139/ssrn.4288999

Gaurab Aryal (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Zhaohui Chen

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-243-1188 (Phone)

Yuchi Yao

Simon Business School, University of Rochester ( email )

Rochester, NY 14627
United States

Chris Yung

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-242-0836 (Phone)

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