tailieunhanh - Brealey−Meyers: Principles of Corporate Finance, 7th Edition - Chapter 15

CHAPTER FIFTEEN HOW CORPORATIONS ISSUE SECURITIES We encountered Marvin Enterprises, one of the most remarkable growth companies of the twenty-first century. It was founded by George and Mildred Marvin, two high-school dropouts, together with their chum Charles P. (Chip) Norton. | Brealey-Meyers Principles of Corporate Finance Seventh Edition The McGraw-Hill Companies 2003 IV. Financial Decisions and I 15. How Corporations Issue Market Efficiency Securities CHAPTER FIFTEEN 400 Brealey-Meyers Principles of Corporate Finance Seventh Edition IV. Financial Decisions and Market Efficiency 15. How Corporations Issue Securities The McGraw-Hill Companies 2003 IN CHAPTER 11 we encountered Marvin Enterprises one of the most remarkable growth companies of the twenty-first century. It was founded by George and Mildred Marvin two high-school dropouts together with their chum Charles P. Chip Norton. To get the company off the ground the three entrepreneurs relied on their own savings together with personal loans from a bank. However the company s rapid growth meant that they had soon borrowed to the hilt and needed more equity capital. Equity investment in young private companies is generally known as venture capital. Such venture capital may be provided by investment institutions or by wealthy individuals who are prepared to back an untried company in return for a piece of the action. In the first part of this chapter we will explain how companies like Marvin go about raising venture capital. Venture capital organizations aim to help growing firms over that awkward adolescent period before they are large enough to go public. For a successful firm such as Marvin there is likely to come a time when it needs to tap a wider source of capital and therefore decides to make its first public issue of common stock. The next section of the chapter describes what is involved in such an issue. We will explain the process for registering the offering with the Securities and Exchange Commission and we will introduce you to the underwriters who buy the issue and resell it to the public. We will also see that new issues are generally sold below the price at which they subsequently trade. To understand why that is so we will need to make a brief sortie into the field of