The flotation costs, relative to the amount raised, are usually lower for a firm commitment offering than a best-eff ort offering.

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A firm commitment offering involves underwriters committing to purchasing and reselling all the shares being offered by the firm, whereas a best-effort offering involves underwriters attempting to sell the shares to investors but without any commitment to purchase any unsold shares. As a result, underwriters can offer lower flotation costs for a firm commitment offering since they bear less risk and uncertainty.

The Flotation Costs, Relative to the Amount Raised, Are Usually