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The Equity of the Corporation: Common and Preferred Stock

In: Quantitative Corporate Finance

Author

Listed:
  • John B. Guerard Jr.

    (McKinley Capital Management, LLC)

  • Anureet Saxena

    (McKinley Capital Mgmt, LLC)

  • Mustafa N. Gültekin

    (University of North Carolina Chapel Hill)

Abstract

This chapter deals mainly with the financial function of stockholding, i.e., the supplying of risk capital and the expected rewards thereof. The shareholders’ expected return is the supply cost of equity capital. Only if the firm is able to give its shareholders at the minimum the “normal” rate of return on risk capital can the company be considered an economic success. Thus, a large part of the discussion is centered on the behavior of the investment markets. This follows from the assumption that the major objective of financial management is to maximize the long-run value of the common stock. If management is to develop financial strategies aimed at maximizing the long-run value of the common stock, it must understand the rationale of the investment markets. It is this market that measures relative risk and provides approximations of the rates of return on different classes of risk capital.

Suggested Citation

  • John B. Guerard Jr. & Anureet Saxena & Mustafa N. Gültekin, 2022. "The Equity of the Corporation: Common and Preferred Stock," Springer Books, in: Quantitative Corporate Finance, edition 3, chapter 0, pages 149-179, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-87269-4_8
    DOI: 10.1007/978-3-030-87269-4_8
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