Stock Offerings and Investor Monitoring

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Presentation transcript:

Stock Offerings and Investor Monitoring CHAPTER 10 Stock Offerings and Investor Monitoring

CHAPTER 10 OVERVIEW This chapter will: A. Explain how stock markets facilitate secondary market trading B. Describe investor participation in the stock markets F. Describe the globalization of stock markets

Equity Private equity Public equity going public has two effects on firm: 1 changing the ownership structure; 2 changing the capital structure.

Equity 1. Common Stock a. Permitted to vote on key matters 2. Preferred Stock a. Does not allow for voting rights b. Less risk

Investor Participation Two Investor types: Individual or Institutional

Exhibit 10.2 Institutional Use of Stock Markets

Investor Participation How Investor Decisions Affect Stock Prices a. Investors buy when they believe market price is below the stock’s valuation; sell when market price is above b. Investors rely on Information they respond to the release of new information that affects the firm’s future performance

Stock Exchanges 1. Organized Exchanges a. The Trading Floor b. Listing Requirements 2. Over-The-Counter Market a. NASDAQ b. OTC Bulletin Board: stocks under $1 c. Pink Sheets

Stock Exchanges 3. Extended Trading Sessions 4. Stock Quotations Provided by Exchanges a. 52-Week Price Range b. Symbol c. Dividend d. Dividend Yield e. Price-Earnings Ratio f. Volume g. Previous Day’s Price Quotations

Exhibit 10.4 Example of Stock Price Quotations

Stock Exchanges 5. Stock Index a. Dow Jones Industrial Average (DJIA) b. Standard & Poor’s (S&P) 500 c. NASDAQ e. Other Stock Indexes

Globalization of Stock Markets 1. Foreign Stock Offerings in the United States 2. Co-movement of Global Stock Exchanges 3. Methods Used to Invest in Foreign Stocks a. Direct Purchases b. American Depository Receipts c. International Mutual Funds

Exhibit 10.5 Comparison of Global Stock Exchanges Source: World Development Indicators, World Bank

Assignment 7 Chapter 10: Questions and Applications 1,14 Problems: 1 more in Chapter 11

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