Final answer:
Flotation costs are lower as a percentage of the value of securities issued for large issues due to economies of scale. Larger offerings spread fixed costs over more capital, reducing the percentage effect of flotation costs on the funds raised.
Step-by-step explanation:
Flotation costs as a percentage of the value of securities issued are typically lower for large issues. Flotation costs refer to the total fees that a company pays to issue new securities, including underwriting fees, legal fees, and registration fees. These costs are incurred by the company that is issuing the new securities and can reduce the amount of funds raised from the offering.
The reason flotation costs tend to be lower for large issues is due to economies of scale. Larger issues mean more money is being raised, and while the overall flotation costs may be higher in absolute terms, they represent a smaller proportion of the funds raised when compared to smaller offerings. This is because certain costs, like legal fees and registration fees, may not increase proportionately with the size of the offering.