Competitive versus Negotiated Underwriting of Public Utility Debt

Abstract

The question as to whether competitive bidding or negotiated underwriting is the least-cost method for distributing new issues of public utility bonds remains largely unresolved. This study analyzes the costs on such new issues during the period from January, 1972, through August, 1974. The results indicate that, in general, competitive bidding was the least-cost method of distributing public utility obligations during this period. An analysis of the relationship between issue size, underwriting arrangement (i.e., competitive versus negotiated), and underwriters' charges does, however, suggest that negotiated underwriting may be the preferable alternative in certain circumstances.