This chapter looked closely at how equity is issued. The main points follow:
Large issues have proportionately much lower costs of issuing equity than small ones.
Firm commitment underwriting is far more prevalent for large issues than is best-efforts underwriting. Smaller issues probably primarily use best efforts because of the greater uncertainty of these issues. For an offering of a given size, the direct expenses of best-efforts underwriting and firm commitment underwriting are of the same magnitude.
Rights offerings are cheaper than general cash offers and eliminate the problem of underpricing. Yet most new equity issues are underwritten general cash offers.
Shelf registration is a new method of issuing new debt and equity. The direct costs of shelf issues seem to be substantially lower than those of traditional issues.
Venture capitalists are an increasingly important influence in start-up firms and subsequent financing.
