The firm commitment method of compensation for investment bankers is always more risky financially for issuing firms than the best efforts method.

Question

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In the firm commitment method, the investment banker buys the entire issue of new securities from the issuing firm at a set price, assuming the risk of selling the securities to the public. If the securities sell for more, the issuer doesn't benefit from the additional revenue, but if they sell for less, the issuer doesn't bear the loss. In contrast, with the best efforts method, the investment banker does not guarantee the sale of securities and acts only as an agent to sell as much as possible. The issuing firm bears the risk of the securities not being sold, which can be financially riskier if the market does not respond well.

The Firm Commitment Method of Compensation for Investment Bankers Is