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INTERMEDIARIES
Private
FINANCIAL
FINANCIAL BROKERS
placement
Indicates the possible
presence of a
SECONDARY MARKET standby arrangement
Indicates the financial
intermediaries own
SAVINGS SECTOR securities flow to the
savings sector
Public Issue
Public Issue -- Sale of bonds or stock to
the general public.
Securities are sold to hundreds, and often
thousands, of investors under a formal contract
overseen by federal and state regulatory
authorities.
When a company issues securities to the general
public, it is usually uses the services of an
investment banker.
Investment Banker
Investment Banker -- A financial institution that
underwrites (purchases at a fixed price on a fixed
date) new securities for resale.
Investment banker receives an underwriting spread when
acting as a middleman in bringing together providers and
consumers of investment capital.
Underwriting spread -- the difference between the price
the investment bankers pay for the security and the price
at which the security is resold to the public.
Investment Banker
Investment bankers have expertise, contacts, and the sales organization to
efficiently market securities to investors.
statistically -2
significant effects. -3
-4
-10 -8 -6 -4 -2 0 2 4 6 8
Time Around Announcement (in days)
Possible Explanations for Price
Reactions
Expectations of Future Cash Flows
The unexpected sale of securities may be associated with lower than expected
operating cash flows and interpreted as bad news. Hence, the stock price might
suffer accordingly.