On the costs of issuing shares

The present paper models the process of issuing new equity as a three-stage game. first the issuing firm is allowed to negotiate with several investment-bankers on an underwriting contract. then the shares are issued at a primary market tothe public and, finally, investors can trade shares at a secondary market. under symmetric information the costs of issuing shares in equilibrium consists of two parts: underpricing at the primary market and the cost of an underwriting contract, where the incentive to conclude the latter stems from the danger of even more severe underpricing in a non-underwritten issue.;