THE CHOICE BETWEEN FIRM-COMMITMENT AND BEST-EFFORTS OFFERING METHODS IN IPOS - THE EFFECT OF UNSUCCESSFUL OFFERS

Previous research questions the use of best-efforts offering methods f or IPOs since firm-commitment offerings have lower direct issue costs. This paper attempts to explain the choice of best-efforts methods by focusing on an indirect offering cost: the possibility that an offerin g will be unsuccessful. Determinants of offering success, including of fering size, price, underwriter reputation and the clustering of filin gs, have different impacts on the likelihood of success for these offe ring methods. Unsuccessful offerings are also found to be costly. Issu ers select the offering method that provides the greater rs ante proba bility of success, all else equal, consistent with cost minimization. (C) 1998 Academic Press.