Financial Markets and Institutions (2-downloads)

2. Issuing marketable debt and equity securities is not the primary

way in which businesses finance their operations.

Figure 7.1

shows that bonds are a far more important source of financing than stocks

in the United States (32% versus 11%). However, stocks and bonds com-

bined (43%), which make up the total share of marketable securities, still

supply less than one-half of the external funds corporations need to

finance their activities. The fact that issuing marketable securities is not

the most important source of financing is true elsewhere in the world as

well. Indeed, as we see in Figure 7.1, other countries have a much smaller

share of external financing supplied by marketable securities than the

United States. Why don’t businesses use marketable securities more exten-

sively to finance their activities?