Chapter 4 - The share market and the corporation. After completing this chapter, students will be able to understand the nature of corporations and their use of equity as a financing tool. This chapter also describe the role of the stock market. | Chapter 4 The Share Market and the Corporation Websites: Learning Objectives Understand the nature of corporations and their use of equity as a financing tool Describe the role of the stock market Chapter Organisation Introduction The Nature of the Corporation The Stock Exchange The Development of Share Markets Summary Introduction Share market A formal exchange facilitating the issue, buying and selling of equity securities Publicly listed corporation A company whose shares are quoted and traded on a formal stock exchange (SX) Introduction (cont.) Ordinary share The principal form of equity issued by a corporation which bestows a claim to residual cash flows and ownership and voting rights Chapter Organisation Introduction The Nature of the Corporation The Stock Exchange The Development of Share Markets Summary The Nature of the Corporation The corporation differs from other business forms Ownership claims are widespread and easily transferable Owners (shareholders) do not affect the day-to-day affairs of the company Shareholder’s liability is limited to the uncalled amount of the shares The Nature of the Corporation (cont.) Advantages of the corporate form Can obtain large amounts of finance for a relatively cheap cost The liquidity of securities facilitates investor diversification and encourages investment in corporate securities Specialised management can be chosen (due to separation of ownership and control) The Nature of the Corporation (cont.) Advantages of the corporate form (cont.) ‘Perpetual succession’—the corporate form is unaffected by changes in management or ownership The corporate form is suited to large-scale operations The Nature of the Corporation (cont.) Disadvantages of the corporate form The primary disadvantage arises due to the separation of ownership and control Conflict of interest between owners (shareholders) and mangers (agents) | Chapter 4 The Share Market and the Corporation Websites: Learning Objectives Understand the nature of corporations and their use of equity as a financing tool Describe the role of the stock market Chapter Organisation Introduction The Nature of the Corporation The Stock Exchange The Development of Share Markets Summary Introduction Share market A formal exchange facilitating the issue, buying and selling of equity securities Publicly listed corporation A company whose shares are quoted and traded on a formal stock exchange (SX) Introduction (cont.) Ordinary share The principal form of equity issued by a corporation which bestows a claim to residual cash flows and ownership and voting rights Chapter Organisation Introduction The Nature of the Corporation The Stock Exchange The Development of Share Markets Summary The Nature of the Corporation The corporation differs from other business forms
