Financial Management: Principles and Applications, 13/e

10.1 Common Stock

As you learned in Chapter 2, common stock represents ownership of the corporation, so the common stockholders are the owners of the firm. They elect the firm’s board of directors, who, in turn, appoint the firm’s top management team. The firm’s management team then carries out the day-to-day management of the firm.

Characteristics of Common Stock

Common stock does not have a maturity date but exists as long as the firm does. Nor does common stock have an upper or lower limit on its dividend payments. In the event of bankruptcy, the common stockholders—as owners of the corporation—have the most junior claim, which means that they are not entitled to the assets of the firm until the firm’s debt holders and preferred shareholders ...