Академический Документы
Профессиональный Документы
Культура Документы
Learning Objectives
1.Describe the ways in which firms can raise funds for new investment. 2.Understand the process of issuing new securities. 3.Comprehend the role played by investment banks in raising capital. 4.Discuss how capital is raised in countries outside the United States. 5.Analyze trends in raising capital.
Internal Capital
Sources: the earnings firms generate & external funds from the capital markets Percentage of total investment funds: 40%-80%, not sufficient to meet the total capital needs
External Capital
Debt vs. Equity Debt is the most frequently used source of outside capital. 1.Debt claims are senior to equity claims. 2.Interest payments on debt claims are tax deductible, but dividends on equity claims are not.
Continued
easier to renegotiate limited investor base less liquid more difficult countless anonymous investors great fluidity, can be traded on public secondary markets
International Markets
Euromarkets
a collection of large international banks that help firms issue bonds and make loans outside the country in which the firm is located
Direct Issuance
selling directly in the foreign markets
2.2 cooling off period The SEC scrutinize the registration statement and determine whether or not to approve it or make it effective.
2.3 primary offering The firm raises capital for itself by selling stock to the public.
Underwriting
The underwriting process (1) Origination (2) Distribution (3) Risk Bearing (4) Certification
Origination
the type of security to issue the timing of the issue the pricing of the issue registration statement and syndicate fo investment bankers
Distribution
selling of the issue to decide the amount of the issue each bank has agreed to sell
Risk Bearing
to buy the securities the firm is selling and to resell them to its clients to face the risk of selling the securities at bargain prices if the issue does poorly
Certification
to certify the quality of an issue If an underwriter substantially misprices an issue, its future business is likely to be damaged.
Types of Underwriting Arrangements Firm Commitment vs. Best-Efforts Offering Negotiated vs. Competitive Offering Shelf Offering Right Offering
3.Investment Bank
3.1 The Corporate Business
underwriting securities providing merger and acquisition advice finding financing for the takeover planning takeover tactics
Germany Japan
Banking sector universal banking separate banking
U.K.
U.S.
commercial banks & investment banks small because common stock ownership by banks is prohibited public primarily
clearing banks & merchant banks great voting monitoring small power the because of decisions banks of firms reluctance manageme to assume nt the risk
private primarily private primarily public primarily
Trend to similarity
1 Separation of commercial and investment banking becomes gradually abolished, universal banking takes the leading position. 2 Both Germany and Japan enhance the financing function of public capital markets.
5.2 Deregulation With globalization, capital will tend to go to countries where returns are large and restrictions on inflows and outflows are small, which forces the government to deregulate.
5.3 Innovative Instruments allow firms to avoid the constraints and costs imposed by governments tailor securities to appeal to new sets of investors allow firms to diminish the effects of fluctuating interest and exchange rates
5.4 Technology to simultaneously issue billions of dollars of securities in a score of countries across the globe to trade trillions of dollars in the secondary markets to price new instruments
5.5 Securitization The process of bundling, combining financial instruments that are not securities, registering the bundles as securities, and selling them directly to the public, e.g. collateralized mortgage obligations & accounts receivable
Classifying Offering IPO---Initial Public Offering, issuing equity to the public for the first time. SEO---Seasoned Offering, a firm is already traded and is simply selling more common stock.
1.3 possible reasons (1) complicated procedures for competitive underwritings (2) Negotiated underwritings can provide more suitable plans for the offering firms. 1.4 costs: resources in investigating insider trading benefits: protecting investors benefit and providing a fair environment, which is quite attractive to domestic and foreign investors
1.5 Because there are economies of scale in issuing. As a percentage of the proceeds, fixed fees decline as issue size rises and expenses classified under fixed fees do not vary much. 1.6 Universal banking in Germany and the tight relationship between banks and corporations may be the reasons. With deregulation in U.S., it is possible that scale of banks in U.S. will become larger. However, since the standard to evaluate a bank is its profitability, not its scale, I do not believe the scale of U.S. banks will finally come up with that of banks in Japan and Germany.