Unformatted text preview: minimize their risk, the investment bankers
combine to form an underwriting syndicate to
share the risk and help sell the issue to the public.
Managerial Finance 0 Best Efforts
Under a best efforts underwriting, the
underwriter does not buy the issue from the
Instead, the underwriter acts as an agent,
receiving a commission for each share sold, and
using its “best efforts” to sell the entire issue.
This is more common for initial public offerings
than for seasoned new issues.
Managerial Finance 1 19.4 The Announcement of New Equity
and the Value of the Firm
The market value of existing equity drops on the
announcement of a new issue of common stock.
Since the managers are the insiders, perhaps they are selling
new stock because they think it is overpriced.
If the market infers that the managers are issuing new equity to reduce
their debt-equity ratio due to the specter of financial distress the stock
price will fall....
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- Spring '12