Financial Markets and Institutions (2-downloads)

1. Stocks are not the most important source of external financing for

businesses.

Because so much attention in the media is focused on the

stock market, many people have the impression that stocks are the most

important sources of financing for American corporations. However, as we can

see from the bar chart in Figure 7.1, the stock market accounted for only a

small fraction of the external financing of American businesses in the

1970–2000 period: 11%.

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Similarly small figures apply in the other countries

presented in Figure 7.1 as well. Why is the stock market less important than

other sources of financing in the United States and other countries?