Stock market liquidity and capital structure

Stock market liquidity and capital structure

By: gaizziree Date: 24.06.2017

A stock exchange or bourse is an exchange where stock brokers and traders can buy and sell stocks also called sharesbondsand other securities. Stock exchanges may also provide facilities for issue and redemption of securities and other financial instruments and capital events including the payment of income and dividends.

Securities traded on a stock exchange include stock issued by listed companies, unit trustsderivativespooled investment products and bonds. Stock exchanges often function as "continuous auction" markets with buyers and sellers consummating transactions at a central location such as the floor of the exchange. To be able to trade a security on a certain stock exchange, it must be listed there.

Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets use electronic networkswhich gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is restricted to brokers who are members of the exchange. In recent years, various other trading venues, such as electronic communication networks, alternative trading systems and " dark pools " have taken much of the trading activity away from traditional stock exchanges.

The initial public offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets are driven by various factors that, as in all free marketsaffect the price of stocks see stock valuation. There is usually no obligation for stock to be issued via the stock exchange itself, nor must stock be subsequently traded on the exchange.

Such trading may be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global securities market. The idea of debt dates back to the ancient worldas evidenced for example by ancient Mesopotamian clay tablets recording interest-bearing loans.

There is little consensus among scholars as to when corporate stock was first traded. Some see the key event as the Dutch East India Company 's founding inwhile others point to earlier developments. Economist Ulrike Malmendier of the University of California at Berkeley argues that a share market existed as far back as ancient Rome. In the Roman Republicwhich existed for centuries before the Empire was founded, there were societates publicanorumorganizations of contractors or leaseholders who performed temple-building and other services for the government.

Participants in such organizations had partes or shares, a concept mentioned various times by the statesman and orator Cicero.

In one speech, Cicero mentions "shares that had a very high price at the time. The societas declined into obscurity in the time of the emperors, as most of their services were taken over by direct agents of the state. Tradable bonds as a commonly used type of security were a more recent innovation, spearheaded by the Italian city-states of the late medieval and early Renaissance periods.

Corporate drivers of market liquidity on the Warsaw stock exchange | wugadukucevu.web.fc2.com

While the Italian city-states produced the first transferable government bonds, they did not develop the other ingredient necessary to produce a fully fledged capital market: In the early s the Dutch East India Company VOC became the first company in history to issue bonds and shares of stock to the general public. As Edward Stringham notes, "companies with transferable shares date back to classical Rome, but these were usually not enduring endeavors and no considerable secondary market existed Neal,p.

Control of the company was held tightly by its directors, with ordinary shareholders not having much influence on management or even access to the company's accounting statements.

However, shareholders were rewarded well for their investment. The company paid an average dividend of over 16 percent per year from to Financial innovation in Amsterdam took many forms. Ininvestors led by one Isaac Le Maire formed history's first bear syndicate, but their coordinated trading had only a modest impact in driving down share prices, which tended to be robust throughout the 17th century. By the s, the company was expanding its securities issuance with the first use of corporate bonds.

Joseph de la Vegaalso known as Joseph Penso de la Vega and by other variations of his name, was an Amsterdam trader from a Spanish Jewish family and a prolific writer as well as a successful businessman in 17th-century Amsterdam.

His book Confusion of Confusions explained the workings of the city's stock market. It was the earliest book about stock tradingtaking the form of a dialogue between a merchant, a shareholder and a philosopher, the book described a market that was sophisticated but also prone to excesses, and de la Vega offered advice to his readers on such topics as the unpredictability of market shifts and the importance of patience in investment.

In England, King William III sought to modernize the kingdom's finances to pay for its wars, and thus the first government bonds were issued in and the Bank of England was set up the following year. Soon thereafter, English joint-stock companies began going public. London's first stockbrokers, however, were barred from the old commercial center known as the Royal Exchange, reportedly because of their rude manners.

Instead, the new trade was conducted from coffee houses along Exchange Alley. Bya broker named John Castaing, operating out of Jonathan's Coffee Housewas posting regular lists of stock and commodity prices. Those lists mark the beginning of the London Stock Exchange. One of history's greatest financial bubbles occurred in the next few decades.

At the center of it were the South Sea Companyset up in to conduct English trade with South America, and the Mississippi Companyfocused on commerce with France's Louisiana colony and touted by transplanted Scottish financier John Lawwho was acting in effect as France's central banker. Investors snapped up shares in both, and whatever else was available.

Inat the height of the mania, there was even an offering of "a company for carrying out an undertaking of great advantage, but nobody to know what it is. By the end of that same year, share prices were collapsing, as it became clear that expectations of imminent wealth from the Americas were overblown.

In London, Parliament passed the Bubble Actwhich stated that only royally chartered companies could issue public shares. In Paris, Law was stripped of office and fled the country. Stock trading was more limited and subdued in subsequent decades. Yet the market survived, and by the s shares were being traded in the young United States.

Stock exchanges have multiple roles in the economy. This may include the following: A stock exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public. Besides the borrowing capacity provided to an individual or firm by the banking systemin the form of credit or a loan, there are four common forms of capital raising used by companies and entrepreneurs. Most of these available options might be achieved, directly or indirectly, through a stock exchange.

Capital intensive companies, particularly high tech companies, always need to raise high volumes of capital in their early stages. For this reason, the public market provided by the stock exchanges has been one of the most important funding sources for many capital intensive startups.

This is quite different from the situation of the s to earlys how much money does an elementary school teacher make in ontario, when a number of companies particularly Internet boom and biotechnology companies went public in the most prominent stock exchanges around the world, in the total absence of sales, earnings and any well-documented promising outcome.

Anyway, every year a number of companies, including unknown strategy 60 seconds binary options reviews speculative and financially unpredictable hi-tech startups, are listed for the first time in all the major stock exchanges — there are even specialized entry markets for these kind of companies or stock indexes tracking their performance examples include stock market liquidity and capital structure AlternextCAC SmallSDAXTecDAXor most of the third market good companies.

In order for a partnership to be of interest to investors today, the cash on cash return must be high enough to entice investors. A third usual source of aro stock options for startup companies has been venture capital. A fourth alternative source of cash for a private company is a corporate partnerusually an established multinational company, which provides capital for the smaller company in return for marketing rights, patent rights, or equity.

Corporate partnerships have been used successfully in a large number of cases. When people draw their savings and invest in shares through an IPO or the issuance of new company shares of an already listed companyit usually leads to rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to help companies' management boards finance their organizations.

This may promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels of firms. Companies view acquisitions as an opportunity to expand product linesincrease distribution channels, hedge against volatility, increase their market shareor acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.

Both casual and professional stock investorsas large as institutional investors or as small as an ordinary middle-class familythrough dividends and abu dhabi stock exchange index price increases that may result in capital gainsshare in the wealth of profitable businesses.

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Unprofitable and troubled businesses may result in capital losses for shareholders. By having a wide and varied scope of owners, companies generally tend to improve management standards and efficiency to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies companies that are owned by shareholders who are members of the general public and trade shares on public exchanges tend to have better management records than privately held companies those companies where shares are not publicly traded, often owned by the company founders, their families and heirs, or otherwise by a small group of investors.

Despite indian capital and stock market ppt claim, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies. The dot-com bubble in the late s, and the subprime mortgage crisis in —08, are classical examples of corporate mismanagement.

TelSunbeamWebvanAdelphiaMCI WorldComParmalatAmerican International GroupBear StearnsLehman BrothersGeneral Motors and Satyam Computer Services were among the most widely scrutinized by the media. To assist in corporate governance many banks and companies worldwide utilize securities identification numbers USIN to identify, uniquely, their stocks, bonds and other securities.

Adding an ISIN code helps to distinctly identify securities and the ISIN system is used worldwide by funds, companies, and governments. However, when poor financial, ethical or managerial records are known by the stock investorsthe stock and the company tend to lose value. In the stock exchanges, shareholders of underperforming firms are often penalized by significant share price decline, and they tend as well to dismiss incompetent management teams.

As opposed to other businesses that require huge capital outlay, guide dogs for the binary options trading in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore, the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.

Governments at various levels may decide to borrow money to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds.

These bonds can be raised through the stock exchange whereby members of the public buy them, thus loaning money to the government.

The issuance of such bonds can obviate, in the short term, direct taxation of citizens to finance development—though by securing such bonds with the full faith and credit of the government instead of with collateral, the government must eventually tax citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.

At the stock exchange, share prices rise and fall depending, largely, on economic forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth.

An economic recessiondepression, or financial crisis could eventually lead to a stock market crash. Therefore, the movement of share prices and in general of the stock indexes can be an indicator of the general trend 072016 binary options the best platform 13 the economy.

Listing requirements are the set of conditions imposed by a given stock exchange upon companies that want to be listed on that exchange. Such conditions sometimes include minimum number of shares outstanding, minimum market capitalization, and minimum annual income.

Companies must meet an exchange's requirements to have their stocks and shares listed and traded there, but requirements vary by stock exchange:. Stock exchanges originated as mutual organizationsowned by its member stock brokers.

stock market liquidity and capital structure

There has been a recent trend for stock exchanges to demutualizewhere the members sell their shares in an initial public offering.

In this way the mutual organization becomes a corporation, with shares that are listed on a stock exchange. The Shenzhen and Shanghai stock exchanges can be characterized as quasi-state institutions insofar as they were created by government bodies in China and their leading personnel are directly appointed by the China Securities Regulatory Commission.

Another example is Tashkent republican stock exchange Uzbekistan established inthree years after collapse of Soviet Union, mainly state-owned but has a form of a public corporation joint stock company. According to an Uzbek government decision March 25 percent minus one share of Tashkent stock exchange was expected to be sold to Korea Exchange KRX in In the 19th century, exchanges were opened to trade forward contracts on commodities.

Exchange traded forward contracts are called futures contracts. These commodity exchanges later started offering future contracts on other products, such as interest rates and shares, as well as options contracts. They are now generally known as futures exchanges. From Wikipedia, the free encyclopedia. Derivatives Credit derivative Futures exchange Hybrid security. Foreign exchange Currency Exchange rate. Financial history of the Dutch Republic. Economic history of the Dutch Republic.

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Block trade Cross listing Dark liquidity Dividend Dual-listed company DuPont analysis Efficient frontier Flight-to-quality Haircut Initial public offering Margin Market anomaly Market capitalization Market depth Market manipulation Market trend Mean reversion Momentum Open outcry Public float Public offering Rally Returns-based style analysis Reverse stock split Share repurchase Short selling Slippage Speculation Stock dilution Stock market index Stock split Trade Uptick rule Volatility Voting interest Yield.

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stock market liquidity and capital structure

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