Previous research has questioned the use of best-effort methods for IPOs, given that business offerings have lower direct issuance costs. This paper attempts to explain the choice of methods of the best efforts by focusing on the costs of indirect supply: the possibility that an offer will remain unsuccessful. The determinants of success, including bid size, price, underwriter reputation and bid pooling, have different effects on the likelihood of success of these bidding methods. Unsuccessful offers are also seen as costly. Issuers choose the supply method that offers the greatest probability of ex ante success, all the rest in the same way, in accordance with cost minimisation. Journal of Economic LiteratureClassification Numbers: G24, C25. An example of a firm commitment in the event of an IPO is the fact that an investment bank undertakes to take over an IPO. For example, Goldman Sachs and Morgan Stanley signed the IPO of Facebook. They have pledged to sell the Facebook stock to the public. At the same time, they did it in the short term and made millions. With respect to derivatives, a firm commitment is a concept described in Financial Accounting Standard Board (FASB) Statement 133: “In the case of a derivative instrument called the fair value exposure to exposure to a recognized asset or a fixed liability (called fair hedge value), the result of the period of change is added to the loss or profit of the hedged asset.

which is due to the risk to be taken into account. In these types of offers, investment bankers who act as agents agree to do their best to sell a program to the public. Instead of buying the securities directly, these agents have an option to buy and a power to sell the securities. Under the contract, agents exercise their option of use and purchase enough shares to cover their sales to customers, or they completely terminate the issue sold incompletely and waive the tax. The best efforts result in risks and delays from the issuer`s point of view. The best deals we can see today are largely done by companies specializing in more speculative securities of new and inexperienced companies. Investment banks have the opportunity to acquire enough shares to meet customer demand as part of an agreement on the best efforts. The bank may also act as an agent or agent to organize the public offering and sell the share issue to the public. In this case, the insurer agrees to sell a number of shares to investors and to obtain the best possible price for the issuer. Some banks opt for a partnership with others and form a union to facilitate the offer. In a better offer, the Underwriter is given the opportunity to buy the entire $5 million issue. If there is investor demand for only $3 million from the issue, the insurer could buy $3 million of the issue and sell it to investors.

Assuming the amount meets the revenue threshold, the insurer could leave the remaining $2 million issue unsold. For example, if the insurer knows that a problem would create low demand, there is no reason for the insurer to offer a signed offer to buy the entire issue and risk not being able to sell the problem to investors. Instead, the insurer could choose to offer an offer and try to sell enough shares to reach the revenue threshold needed to reach the fixed fee. A standby commitment goes further than possible, the underwriter consents to the purchase of IPO shares not sold at the reference price. The standby commitment fee will be higher because the insurer may see the price it has to pay for unsold shares, due to lower-than-expected demand, at a rise in the current market price.