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Lecture8 - raising capital debt equity covenants

G consistency with specify gaap gaap officers

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Unformatted text preview: n to bondholders (financial statements, Supply reports, etc) reports, Specify accounting techniques (e.g., consistency with Specify GAAP) GAAP) Officers’ certificate of compliance: managers provide a Officers’ signed document stating that covenants have not been violated violated 14 Equity Financing Three types of public equity securities – Common stock – Preferred stock – Warrants Private Equity Common stock is a share of ownership in a corporation that usually entitles the holder to vote in the firm’s affairs that Common stock holders are the owners of the firm They are entitled to the firm’s profits after other They contractual claims on the firm are satisfied (e.g., debt payments) payments) Common stock holders ultimately run the firm 15 Dual-Class Shares Dual-class common stock: some firms have two classes of common stock, usually called class A and class B, which differ in terms of their votes per share differ These firms where usually family-owned firms until they These grew too large to be financed by the family alone. grew Because families did not want to give up control, they keep Because the super-voting shares (usually not traded) and raise outside equity by issuing shares with inferior voting power. outside Thus, they obtain capital but keep full control of the firm In this case, voting rights > cash-flow rights. Heavily In criticized by advocates of shareholder rights. criticized 16 Benefits of Dual-Class Shares They insulate managers from the need to meet short-term They financial expectations which can be detrimental to building long-term value. Founders reluctant to use debt financing use them as a way to grow the company without giving up control. With no takeovers to worry about, founders are more likely to remain in charge and benefit shareholders with their skills and expertise. Entrepreneurship is encouraged by ensuring that founders reap future benefits from their efforts, instead of sharing them with subsequent shareholders. them Founding families also have an incentive to bequeath a Founding valuable asset to their offspring and rela...
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