Are there economies of scale in underwriting fees

The extent of investment banker work, for example, in writing the prospectus and preparing the roadshow, is somewhat fixed, while the amount of sales work is not. Larger deals will not involve exponentially more investment banker work.

However, it might involve much more sales effort, requiring an increase in the proportion of the selling concession. Alternatively, junior banks may join a syndicate, even if they receive a smaller share of the fees in the form of a lower selling concession.

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I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Investing Stocks. What Is Underwriting Spread? Key Takeaways The underwriting spread is the difference between the amount that an underwriter pays an issuer for its securities and the total proceeds gained from the securities during a public offering. The spread marks the underwriter's gross profit margin, which is subsequently deducted for other items such as marketing costs and the manager's fee.

The underwriting spread will vary on a deal-by-deal basis depending on several factors. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. They agree with the views that underwriters provide valuable services and that the marginal cost of external finance is rising. Oxford University Press is a department of the University of Oxford.

It furthers the University's objective of excellence in research, scholarship, and education by publishing worldwide. Sign In or Create an Account. Sign In. Advanced Search.

Search Menu. Article Navigation. Close mobile search navigation Article Navigation. Volume Article Contents Abstract. Two Perspectives of the Spread. Common Stock Offerings. Your Money. Personal Finance. Your Practice. Popular Courses. What Are Underwriting Expenses? Key Takeaways Underwriting expenses are the cost of performing underwriting activities. For insurance companies, this includes underwriting insurance policies, and for investment banks, it includes securities underwriting for companies launching an initial public offering IPO.

Underwriting expenses include all expenses related to the business, such as actuarial reviews, inspections, due diligence, legal fees, and accounting fees. The goal for any company is to keep underwriting expenses as low as possible to have the highest net income possible. The expense ratio for insurance companies determines the portion of insurance premiums revenues that are used towards paying underwriting expenses.

Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Underwriting Capacity Underwriting capacity is the maximum amount of liability that an insurance company agrees to assume from its underwriting activities.

What You Should Know About Insurance Underwriters An insurance underwriter is a professional who evaluates the risks involved when insuring people or assets and establishes the pricing. What Is Overhead in Business? Overhead refers to the ongoing business expenses not directly attributed to creating a product or service.

How Underwriters Assess the Risk of Insurers Underwriting—financing or guaranteeing—is the process through which an individual or institution takes on financial risk for a fee. Partner Links.