Question: Many small corporations are owned by a few individuals, the original investors who founded the corporation. Sometimes these corporations require greater investments in order to expand to meet the needs of the marketplace or to achieve greater success. One way for a corporation to expand is to make a public offering of its stock. When a corporation issues new stock and the public buys it, the corporation receives the additional investment, minus any commissions, legal fees, and other costs of issuing stock. New offerings of stock are usually sold by investment bankers who have expertise in new stock offerings. A public corporation which already has stock issued that is owned by the general public can also issue additional shares of stock to the public to attract funds for expansion, new product offerings, research, and many other purposes. New stock offerings are sold in what is called primary markets and usually require the services of an investment banker. A corporation's existing stock is sold by another means. Stock that has already been issued and sold may be sold again by whoever owns it. This is generally done through a stockbroker who buys and sells stock in a stock market. In the United States, the two national stock exchanges are the New York Stock Exchange (www.nyse.com) and the American Stock Exchange (www.amex.com). There are also regional stock exchanges in several large cities, such as Chicago and Philadelphia. In addition, Nasdaq (www. nasdaq.com) is a network of brokers who trade securities.
Critical Thinking
1. Do you think that issuing new stock is a guaranteed method of acquiring new funds? Why or why not?
2. Select a major corporation and study its stock listings in the newspaper or on the Internet for several days or weeks. What trends do you notice?