Choosing an Underwriter

A firm can offer its securities to the highest bidding underwriter on a competitive offer basis, or it can negotiate directly with an underwriter. Except for a few large firms, companies usually do new issues of debt and equity on a negotiated offer basis. The exception is public utility holding companies, which are essentially required to use competitive underwriting.

There is evidence that competitive underwriting is cheaper to use than negotiated underwriting. The underlying reasons for the dominance of negotiated underwriting in the United States are the subject of ongoing debate.

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