第十四章长期融资简介.pptx

第十四章长期融资简介.pptx

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ChapterOutline,14.1CommonStock14.2CorporateLong-TermDebt:

TheBasics14.3PreferredStock14.4PatternsofFinancing14.5RecentTrendsinCapitalStructure14.6SummaryandConclusions,14.1CommonStock,ParandNo-ParStockAuthorizedversusIssuedCommonStockCapitalSurplusRetainedEarningsMarketValue,BookValue,andReplacementValueShareholdersRightsDividendsClassesofStock,ParandNo-ParStock,Thestatedvalueonastockcertificateiscalledtheparvalue.Parvalueisanaccountingvalue,notamarketvalue.Thetotalparvalue（thenumberofsharesmultipliedbytheparvalueofeachshare）issometimescalledthededicatedcapitalofthecorporation.Somestockshavenoparvalue.,Authorizedvs.IssuedCommonStock,Thearticlesofincorporationmuststatethenumberofsharesofcommonstockthecorporationisauthorizedtoissue.Theboardofdirectors,afteravoteoftheshareholders,mayamendthearticlesofincorporationtoincreasethenumberofshares.Authorizingalargenumberofsharesmayworryinvestorsaboutdilutionbecauseauthorizedsharescanbeissuedlaterwiththeapprovaloftheboardofdirectorsbutwithoutavoteoftheshareholders.,CapitalSurplus,Usuallyreferstoamountsofdirectlycontributedequitycapitalinexcessoftheparvalue.Forexample,suppose1,000sharesofcommonstockhavingaparvalueof$1eacharesoldtoinvestorsfor$8pershare.Thecapitalsurpluswouldbe（$8$1）1,000=$7,000,RetainedEarnings,Notmanyfirmspayout100percentoftheirearningsasdividends.Theearningsthatarenotpaidoutasdividendsarereferredtoasretainedearnings.,MarketValue,BookValue,andReplacementValue,MarketValueisthepriceofthestockmultipliedbythenumberofsharesoutstanding.AlsoknownasMarketCapitalizationBookValueThesumofparvalue,capitalsurplus,andaccumulatedretainedearningsisthecommonequityofthefirm,usuallyreferredtoasthebookvalueofthefirm.ReplacementValueThecurrentcostofreplacingtheassetsofthefirm.Atthetimeafirmpurchasesanasset,marketvalue,bookvalue,andreplacementvalueareequal.,ShareholdersRights,Therighttoelectthedirectorsofthecorporationbyvoteconstitutesthemostimportantcontroldeviceofshareholders.Directorsareelectedeachyearatanannualmeetingbyavoteoftheholdersofamajorityofshareswhoarepresentandentitledtovote.Theexactmechanismvariesacrosscompanies.Theimportantdifferenceiswhethersharesaretobevotedcumulativelyorvotedstraight.,CumulativeversusStraightVoting,Theeffectofcumulativevotingistopermitminorityparticipation.Undercumulativevoting,thetotalnumberofvotesthateachshareholdermaycastisdeterminedfirst.Usually,thenumberofsharesownedorcontrolledbyashareholderismultipliedbythenumberofdirectorstobeelected.Eachshareholdercandistributethesevotesashewishesoveroneormorecandidates.StraightvotingworkslikeaU.S.politicalelection.Shareholdershaveasmanyvotesassharesandeachpositionontheboardhasitsownelection.Atendencytofreezeoutminorityshareholders.,Cumulativevs.StraightVoting:

Example,Imagineafirmwithtwoshareholders:

Mr.SmithandMs.Wesson.Mr.Smithowns60%ofthefirm（=600shares）andMs.Wesson40%（=400shares）.Therearethreeseatsupforelectionontheboard.Understraightvoting,Mr.Smithgetstopickallthreeseats.Undercumulativevoting,Ms.Wessonhas1,200votes（=400shares3seats）andMr.Smith1,800votes.Ms.Wessoncanelectatleastoneboardmember.,ProxyVoting,Aproxyisthelegalgrantofauthoritybyashareholdertosomeoneelsetovotehisorhershares.Forconvenience,theactualvotinginlargepubliccorporationsisusuallydonebyproxy.,Dividends,Unlessadividendisdeclaredbytheboardofdirectorsofacorporation,itisnotaliabilityofthecorporation.Acorporationcannotdefaultonanundeclareddividend.Thepaymentofdividendsbythecorporationisnotabusinessexpense.Therefore,theyarenottax-deductible.DividendsreceivedbyindividualshareholdersareforthemostpartconsideredordinaryincomebytheIRSandarefullytaxable.Thereisanintra-corporatedividendexclusion.,ClassesofStock,Whenmorethanoneclassofstockexists,theyareusuallycreatedwithunequalvotingrights.Manycompaniesissuedualclassesofcommonstock.Thereasonhastodowithcontrolofthefirm.Lease,McConnell,andMikkelsonfoundthemarketpricesofstockswithsuperiorvotingrightstobeabout5percenthigherthanthepricesofotherwise-identicalstockswithinferiorvotingrights.,14.2CorporateLong-TermDebt:

TheBasics,InterestversusDividendsIsItDebtorEquity?

BasicFeaturesofLong-TermDebtDifferentTypesofDebtRepaymentSenioritySecurityIndenture,InterestversusDividends,Debtisnotanownershipinterestinthefirm.Creditorsdonotusuallyhavevotingpower.Thecorporationspaymentofinterestondebtisconsideredacostofdoingbusinessandisfullytax-deductible.Dividendsarepaidoutofafter-taxdollars.Unpaiddebtisaliabilityofthefirm.Ifitisnotpaid,thecreditorscanlegallyclaimtheassetsofthefirm.,IsItDebtorEquity?

Somesecuritiesblurthelinebetweendebtandequity.Corporationsareveryadeptatcreatinghybridsecuritiesthatlooklikeequitybutarecalleddebt.Obviously,thedistinctionisimportantattaxtime.Acorporationthatsucceedsiscreatingadebtsecuritythatisreallyequityobtainsthetaxbenefitsofdebtwhileeliminatingitsbankruptcycosts.,BasicFeaturesofLong-TermDebt,ThebondindentureusuallylistsAmountofIssue,DateofIssue,MaturityDenomination（Parvalue）AnnualCoupon,DatesofCouponPaymentsSecuritySinkingFundsCallProvisionsCovenantsFeaturesthatmaychangeovertimeRatingYield-to-MaturityMarketprice,DifferentTypesofDebt,Adebentureisanunsecuredcorporatedebt,whereasabondissecuredbyamortgageonthecorporateproperty.Anoteusuallyreferstoanunsecureddebtwithamaturityshorterthanthatofadebenture,perhapsunder10years.,Repayment,Long-termdebtistypicallyrepaidinregularamountsoverthelifeofthedebt.Thepaymentoflong-termdebtbyinstallmentsiscalledamortization.Amortizationisusuallyarrangedbyasinkingfund.Eachyearthecorporationplacesmoneyintoasinkingfund,andthemoneyisusedtobuybackthebonds.,Seniority,Seniorityindicatespreferenceinpositionoverotherlenders.Somedebtissubordinated.Intheeventofdefault,holdersofsubordinateddebtmustgivepreferenceotherspecifiedcreditorswhoarepaidfirst.,Security,Securityisaformofattachmenttoproperty.Itprovidesthatthepropertycanbesoldineventofdefaulttosatisfythedebtforwhichthesecurityisgiven.Amortgageisusedforsecurityintangibleproperty.Debenturesarenotsecuredbyamortgage.,Indenture,Thewrittenagreementbetweenthecorporatedebtissuerandthelender.Setsforththetermsoftheloan:

MaturityInterestrateProtectivecovenants.,14.3PreferredStock,Representsequityofacorporation,butisdifferentfromcommonstockbecauseithaspreferenceovercommoninthepaymentsofdividendsandintheassetsofthecorporationintheeventofbankruptcy.Preferredshareshaveastatedliquidatingvalue,usually$100pershare.Preferreddividendsareeithercumulativeornoncumulative.,IsPreferredStockReallyDebt?

Agoodcasecanbemadethatpreferredstockisreallydebtindisguise.Thepreferredshareholdersreceiveastateddividend.Intheeventofliquidation,thepreferredshareholdersareentitledtoafixedclaim.Unlikedebt,preferredstockdividendscannotbedeductedasinterestexpensewhendeterminingtaxablecorporateincome.MostpreferredstockintheU.S.isheldbycorporateinvestors.Theygeta70-percentincometaxexemption.,ThePreferred-StockPuzzle,Therearetwooffsettingtaxeffectstoconsiderinevaluatingpreferredstock:

Dividendsarenotdeductedfromcorporateincomeincomputingthetaxliabilityoftheissuingcorporation.Whenacorporationbuyspreferredstock,70percentofthedividendsreceivedareexemptfromcorporatetaxation.Mostagreethat2）doesnotfullyoffset1）.Giventhatpreferredstockofferslessflexibilitytotheissuerthancommonstock,somehavearguedthatpreferredstockshouldnotexist.Yetitdoes.,14.4PatternsofFinancing,Internallygeneratedcashflowdominatesasasourceoffinancing,typicallybetween70and90%.Firmsusuallyspendmorethantheygenerateinternallythedeficitisfinancedbynewsalesofdebtandequity.Netnewissuesofequityaredwarfedbynewsalesofdebt.Thisisconsistentwiththepeckingorderhypothesis.FirmsinothercountriesrelytoagreaterextentthanU.S.firmsonexternalequity.,TheLong-TermFinancialDeficit（1999）,Internalcashflow,Externalcashflow,Financialdeficit,14.5RecentTrendsinCapitalStructure,Thisimportantquestionisdifficulttoanswerdefinitively.Whicharebest:

bookormarketvalues?

Ingeneral,financialeconomistsprefermarketvalues.However,manycorporatetreasurersmayfindbookvaluesmoreappealingduetothevolatilityofmarketvalues.Whetherweusebookormarketvalues,debtratiosforU.S.non-financialfirmshavebeenbelow50percentoftotalfinancing.,14.6SummaryandConclusions,Thebasicsourcesoflong-termfinancingare:

Long-TermDebtCommonStockPreferredStockCommonshareholdershavevotingrights,limitedliability,andaresidualclaimonthecorporation.Bondholdershaveacontractualclaimagainstthecorporation.Preferredstockhassomeofthefeaturesofdebtandequity.Firmsneedfinancingmostofitisgeneratedinternally.,