Introduction to Finance

Figure 10.1
the “net percent” line for common stocks mostly indicates negative 
numbers. This means, over the time period covered in the fi gure, corporations have been net 
repurchasers rather than net issuers of new equity.
Corporations raise about 90 percent of their publicly held long-term debt funds by selling 
their bonds through public issues in the United States. A second important method of rais-
ing long-term debt funds is through private sales or placements in the United States. Public 
security issues are off ered for sale to all investors, must be approved by the Securities and 
Exchange Commission (SEC), and are accompanied by public disclosure of the fi rm’s fi nan-
cial statements and other information. Private placements, on the other hand, are sold to spe-
cifi c qualifi ed investors, do not go through SEC scrutiny, and do not require public disclosure 
of company information. Since private sales are “private,” we do not have good data on these 
sales over time.
GLOBAL
U.S. fi rms may borrow funds overseas. The percentage of funds raised overseas 
varies over this time frame, from over 19 percent in 2009 to 1.5 percent in 2010. There are four 
reasons why U.S. fi rms raise funds outside of the United States. First, if they have overseas plants 
or factories, it may make fi nancial sense to raise funds in the country in which the plant is built. 
Second, fi nancing costs, such as interest rates, are sometimes lower overseas, although the recent 
downtrend in overseas fi nancing may be due to lower interest rates in the United States. Third, if 
securities are issued outside of the United States, the issuer avoids the costly and time-consuming 
SEC approval process. Fourth, the growing number of large bond off erings (issues of $1 billion 
FIGURE 10.1
Net Percent of Financing from Bonds, New Stock Issues, and Retained Earnings, 
1995–2015
Net percent from bonds
Net percent from common stock
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
–20.0%
–80.0%
–40.0%
–60.0%
140.0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
2007
2006
2008 2009 2010 2011 2012 2013 2014 2015
Net percent from internal financing

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10.2 Bonds
255
or more at one time) causes issuers to seek access to the global capital markets to fi nd buyers. 
Figure 10.1 shows the mix of external (bonds and stocks) fi nancing and internal (retained 
profi ts) fi nancing for U.S. corporations. Because of merger, acquisition, and stock buyback 
activity trends that began in the 1980s, external public equity has declined over time. To 
make up for the shortfall, publicly issued bonds have increased relative to retained earnings 
as a funding source. After the Great Recession, fi rms were more “tightfi sted,” seeking to 
retain more earnings and build up liquidity in the face of a weak economy and an uncertain 
regulatory environment. As the U.S. economy continued to slowly expand, the use of retained 
earnings and internal fi nancing fell to pre-recession levels.