Introduction
Corporate
financing refers to the way a corporation finances its assets or future
investment. It could also be seen as he various sources of fund available to
corporation in time of investment. Raising capital through security (a source
of fund) offerings is an important event in the financial pattern of listed
corporation. The different use of the various sources of fund and their effect
on firm value varies from country to country due to the differences in
financial systems and institutional factors. According to Brealy and Myers
(2002), companies faces two basic financing decisions: how much profit should
be ploughed back into the business rather paid out as dividends? What
proportion of the deficit should be financed by borrowing rather than an issue
of equity? These along with trade payables are the central corporate financing
decisions for each and every firm. Companies can raise capital internally by
retaining earnings or trade payables and externally from the capital market.
The two principal external sources of raising capital are equity and debt.
These comes from either private sources like bank loans and private placements
or public sources like issuing new securities in domestic and foreign capital
markets.
The analysis
of bank loans, private replacements, and investigation of securities offerings
to the public has been a fascinating area of academic research in corporate
finance. By deciding to issue to issue one or another type of security, firms
are constantly changing its capital structure.
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