Security Issuance, Institutional Investors and Quid Pro Quo

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.