In a firm-commitment offering, the underwriters will suffer a financial loss if the offer price is set too high.

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In a firm-commitment offering, the underwriters purchase the registered securities from the issuer and then resell them to the public at a higher price. If the underwriters set the offer price too high and cannot sell all the shares, they will be left with unsold shares that they purchased at a higher price, resulting in a financial loss. Therefore, the underwriters have an incentive to set the offer price appropriately to avoid a financial loss.

In a Firm-Commitment Offering, the Underwriters Will Suffer a Financial