Principles of Managerial Finance, 15th Edition

2.4 The Securities Issuing Process

1. LG5

As net demanders of funds, businesses sometimes find it necessary to access the capital market to raise external financing by selling new securities to investors. Companies use the new financing to fund operations or strategic investments that maximize the value of the firm. Most businesses will issue a mix of debt and equity securities over time, and they can issue both security types through a private placement or a public offering. The process for issuing debt and that for issuing equity are more similar than not, so for brevity the remainder of this section discusses the procedure for issuing common stock.

Because of the high risk associated with a business startup, a firm’s initial financing typically ...