武汉理工大学：《财务管理》课程PPT教学课件（英文版）Chapter 19 The Capital Market

Chapter 19 The Capital Market 19-1

19-1 Chapter 19 The Capital Market

The Capital Market Public ssue Privileged Subscription Regulation of Security Offerings Private placement Initial Financing Signaling effects The Secondary Market 19-2

19-2 The Capital Market Public Issue Privileged Subscription Regulation of Security Offerings Private Placement Initial Financing Signaling Effects The Secondary Market

Capital Market Capital Market - The market for relatively long-term greater than one year original maturity) financial instruments Primary Market-A market where new securities are bought and sold for the first time(a new issues market) Secondary Market-A market for existing (used) securities rather than new issues 19-3

19-3 Capital Market Capital Market -- The market for relatively long-term (greater than one year original maturity) financial instruments. Primary Market -- A market where new securities are bought and sold for the first time (a new issues market). Secondary Market -- A market for existing (used) securities rather than new issues

Capital Market INVESTMENT SECTOR □ Public issue Privileged subscription FINANCIAL BROKERS 安 u2au2u-z Private placement Indicates the possible presence of a SECONDARY MARKET+ standby arrangement Indicates the financial intermediaries?own SAVINGS SECTOR securities flow to the savings sector 194

19-4 Capital Market INVESTMENT SECTOR FINANCIAL INTERMEDIARIES SAVINGS SECTOR FINANCIAL BROKERS SECONDARY MARKET Public issue Privileged subscription Private placement Indicates the possible presence of a standby arrangement Indicates the financial intermediaries?own securities flow to the savings sector

Public issue Public issue a sale of bonds or stock to the general public Securities are sold to hundreds and often thousands, of investors under a formal contract overseen by federal and state regulatory authorities When a company issues securities to the general public, is usually uses the services of an investment banker 19-5

19-5 Public Issue Securities are sold to hundreds, and often thousands, of investors under a formal contract overseen by federal and state regulatory authorities. When a company issues securities to the general public, is usually uses the services of an investment banker. Public Issue -- Sale of bonds or stock to the general public

Investment Banker Investment Banker--a financial institution that underwrites(purchases at a fixed price on a fixed date) new securities for resale Investment banker receives an underwriting spread when acting as a middleman in bringing together providers and consumers of investment capital Underwriting spread -the difference between the price the investment bankers pay for the security and the price at which the security is resold to the public. 19-6

19-6 Investment Banker Investment banker receives an underwriting spread when acting as a middleman in bringing together providers and consumers of investment capital. Underwriting spread -- the difference between the price the investment bankers pay for the security and the price at which the security is resold to the public. Investment Banker -- A financial institution that underwrites (purchases at a fixed price on a fixed date) new securities for resale

Investment Banker Investment bankers have expertise, contacts, and the sales organization to efficiently market securities to investors Thus, the services can be provided at a lower cost to the firm than the firm can perform the same services internally n Three primary means companies offer securities to the general public. Traditional (firm commitment)underwriting Best efforts offering Shelf registration 19-7

19-7 Investment Banker Thus, the services can be provided at a lower cost to the firm than the firm can perform the same services internally. Three primary means companies offer securities to the general public: Traditional (firm commitment) underwriting Best efforts offering Shelf registration Investment bankers have expertise, contacts, and the sales organization to efficiently market securities to investors

Traditional Underwriting Underwriting Bearing the risk of not being able to sell a security at the established price by virtue of purchasing the security for resale to the public; also known as firm commitment underwriting If the security issue does not sell well, either because of an adverse turn in the market or because it is overpriced, the underwriter, not the company, takes the loss 19-8

19-8 Traditional Underwriting If the security issue does not sell well, either because of an adverse turn in the market or because it is overpriced, the underwriter, not the company, takes the loss. Underwriting -- Bearing the risk of not being able to sell a security at the established price by virtue of purchasing the security for resale to the public; also known as firm commitment underwriting

Traditional Underwriting Underwriting syndicate - a temporary combination of investment banking firms formed to sell a new security issue. A. Competitive-bid The issuing company specifies the date that sealed bids will be received Competing syndicates submit bids The syndicate with the highest bid wins the security issue. 19-9

19-9 Traditional Underwriting A. Competitive-bid The issuing company specifies the date that sealed bids will be received. Competing syndicates submit bids. The syndicate with the highest bid wins the security issue. Underwriting syndicate -- A temporary combination of investment banking firms formed to sell a new security issue

Traditional Underwriting B. Negotiated offering The issuing company selects an investment banking firm and works directly with the firm to determine the essential features of the issue Together they discuss and negotiate a price for the security and the timing of the issue Depending on the size of the issue, the investment banker may invite other firms to join in sharing the risk and selling the issue. Generally used in corporate stock and most corporate bond issues 19-10

19-10 Traditional Underwriting The issuing company selects an investment banking firm and works directly with the firm to determine the essential features of the issue. Together they discuss and negotiate a price for the security and the timing of the issue. Depending on the size of the issue, the investment banker may invite other firms to join in sharing the risk and selling the issue. Generally used in corporate stock and most corporate bond issues. B. Negotiated offering