Warrants are sometimes granted to underwriters in initial public offerings as part of the compensation for their services. We examine the effects of underwriter warrants in a sample of firm commitment offerings from 1983 through 1987. These warrants represent a significant component of the compensation to the underwriter and are associated with greater total costs of going public. Warrants appear to provide a mechanism for circumventing otherwise binding regulatory constraints, allowing issuers to offer extra compensation to underwriters marketing especially risky offerings.

We examine an exhaustive set of initial public offerings (IPOs) by venture-capital-backed companies between 1978 and 1987. We find that venture capitalists specialize their investments in firms to provide intensive monitoring services. Consistent with their monitoring role, the venture capitalists take concentrated equity positions, maintain their investment beyond the IPO, and serve on the boards of their portfolio firms. The quality of their monitoring services appears to be recognized by capital markets through lower underpricing for IPOs with better monitors.