Business Ethics and Corporate Governance, Second Edition

CAPITAL MARKET

Industry raises finance from the capital market with the help of a number of instruments. Broadly speaking, corporates have a choice of (i) equity finance and (ii) debt finance. Experience in different countries varies. Generally, equity-based capital is cheap and less cumbersome to manage and service. Substituting equity finance for debt finance makes domestic firms less vulnerable to fluctuations in earnings or increases in interest rates. During the last decade, more than a third of the increase in net assets of large firms in developing countries across the world, has been secured through equity issuance. This pattern contrasts sharply with that of the industrial countries, in which equity financing during the same period has ...