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This chapter presents the following content: Background on stock, initial public offerings, secondary stock offerings, stock exchanges, investor participation in the secondary market, monitoring by investors, the corporate monitoring role, globalization of stock markets. | Chapter 10 Stock Offerings and Investor Monitoring Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Background on stock Initial public offerings Secondary stock offerings Stock exchanges Investor participation in the secondary market Monitoring by investors The corporate monitoring role Globalization of stock markets Background on Stocks A stock is a certificate representing partial ownership in a corporation Stock is issued by firms to obtain long-term funds Owners of stock: Can benefit from the growth in the value of the firm Are susceptible to large losses Individuals and financial institutions are common purchasers of stock The primary market enables corporations to issue new stock The secondary market creates liquidity for investors who invest in stock Some corporations distribute earnings to investors in the form of dividends Background on Stocks (cont’d) Ownership and voting rights The owners are permitted to vote on key matters concerning the firm: Election of the board of directors Authorization to issue new shares Approval of amendments to the corporate charter Adoption of bylaws Voting is often accomplished by proxy Management typically receives the majority of the votes and can elect its own candidates as directors Background on Stocks (cont’d) Preferred stock Preferred stock represents an equity interest in a firm that usually does not allow for significant voting rights A cumulative provision on most preferred stock prevents dividends from being paid on common stock until all preferred dividends have been paid Preferred stock is less risky because dividends on preferred stock can be omitted Preferred stock is a less desirable source of funds than bonds because: Dividends are not tax deductible Investors must be enticed to purchase the preferred stock since dividends do not legally have to be paid Background on Stocks (cont’d) . | Chapter 10 Stock Offerings and Investor Monitoring Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Background on stock Initial public offerings Secondary stock offerings Stock exchanges Investor participation in the secondary market Monitoring by investors The corporate monitoring role Globalization of stock markets Background on Stocks A stock is a certificate representing partial ownership in a corporation Stock is issued by firms to obtain long-term funds Owners of stock: Can benefit from the growth in the value of the firm Are susceptible to large losses Individuals and financial institutions are common purchasers of stock The primary market enables corporations to issue new stock The secondary market creates liquidity for investors who invest in stock Some corporations distribute earnings to investors in the form of dividends Background on Stocks (cont’d) Ownership .
