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Ch. 9] MARKETING OF INVESTMENT SECURITIES 427
them itself. This reason alone is sufficient to deter most
corporations from attempting to advertise and sell their own
stocks and bonds, but there are other reasons based on economy
and expediency.
The first is that of cheapness. It would cost the corporation
a great deal to sell its stocks or bonds to the public directly
through a campaign of advertising. It is unprepared for the
work. It has no selling organization, no facilities for protecting
the investor, no trained men of expert knowledge to investigate
investment conditions. To attempt to supply all these
needs and facilities in even a small degree, would require an
expenditure so much greater than that entailed by the banker
already possessing a selling organization, that the policy of
direct selling could not be considered for a moment.™
The future support of the banker is, in addition to economy,
the weightiest reason that should lead a new corporation
to seek to market its securities through a respectable banking
house. This support lies along two different but allied channels.
The first is the implied willingness on the part of the investment
banker to provide new capital for the expansion of
the business, or to tide it over in case of a sudden emergency.
The second is a willingness on the part of the banker to maintain
a reasonable market for the company's securities. Then,
m Some municipalities have tried to sell their bonds directly to the
investor. They are in a much hettcr position than the corporation to
undertake the work, because municipal bond issues need no recomtnendation
by bankers. Furthermore, as bankers do not, ordinarily, protect the market
on the municipal bonds they sell, the city offers no worse service than the
banker. Yet in spite of these considerations, it is, in the opinion of the
present writer, bad business policy for the municipality. Undoubtedly, in
an active, buoyant bond market the city can sell its bonds; but it fails
when conditions are not right, and no banking house will buy bonds already
offered by the city, except at a marked concession. It has been done many
times. In the spring of 1913, Philadelphia offered $7,000,000, 4 per cent
bonds, "over the counter." The experiment was widely advertised as a
success. But it was not. Only $1,910,000 were actually taken by the public.
The Commissioners of the Sinking Fund of Philadelphia took $1,225,000,
and some twenty-five banks and trust companies subscribed large amounts.
In cases where the municipality has made a conspicuous success of an
"over the counter" sale the local banks and large investors have usually
stood in the background as a kind of quasi-underwriting syndicate, as did
the late James J. Hill for certain sales of St. Paul bonds.
Beschrijving voorwerp
| Titel | The financial policy of corporations |
| Auteur | Dewing, Arthur Stone |
| Jaartal | 1926 |
| Collectienaam | NIVRA Historisch Archief, UBVU gedigitaliseerd |
| PPN | 344552586 |
| Toegangsgegevens (URL) | http://imagebase.ubvu.vu.nl/getobj.php?ppn=344552586 |
| Signatuur origineel | NIVRAHA149 |
| Evaluatie |
Beschrijving
| Titel | NIVRAHA149_00451 |
| Transcript | Ch. 9] MARKETING OF INVESTMENT SECURITIES 427 them itself. This reason alone is sufficient to deter most corporations from attempting to advertise and sell their own stocks and bonds, but there are other reasons based on economy and expediency. The first is that of cheapness. It would cost the corporation a great deal to sell its stocks or bonds to the public directly through a campaign of advertising. It is unprepared for the work. It has no selling organization, no facilities for protecting the investor, no trained men of expert knowledge to investigate investment conditions. To attempt to supply all these needs and facilities in even a small degree, would require an expenditure so much greater than that entailed by the banker already possessing a selling organization, that the policy of direct selling could not be considered for a moment.™ The future support of the banker is, in addition to economy, the weightiest reason that should lead a new corporation to seek to market its securities through a respectable banking house. This support lies along two different but allied channels. The first is the implied willingness on the part of the investment banker to provide new capital for the expansion of the business, or to tide it over in case of a sudden emergency. The second is a willingness on the part of the banker to maintain a reasonable market for the company's securities. Then, m Some municipalities have tried to sell their bonds directly to the investor. They are in a much hettcr position than the corporation to undertake the work, because municipal bond issues need no recomtnendation by bankers. Furthermore, as bankers do not, ordinarily, protect the market on the municipal bonds they sell, the city offers no worse service than the banker. Yet in spite of these considerations, it is, in the opinion of the present writer, bad business policy for the municipality. Undoubtedly, in an active, buoyant bond market the city can sell its bonds; but it fails when conditions are not right, and no banking house will buy bonds already offered by the city, except at a marked concession. It has been done many times. In the spring of 1913, Philadelphia offered $7,000,000, 4 per cent bonds, "over the counter." The experiment was widely advertised as a success. But it was not. Only $1,910,000 were actually taken by the public. The Commissioners of the Sinking Fund of Philadelphia took $1,225,000, and some twenty-five banks and trust companies subscribed large amounts. In cases where the municipality has made a conspicuous success of an "over the counter" sale the local banks and large investors have usually stood in the background as a kind of quasi-underwriting syndicate, as did the late James J. Hill for certain sales of St. Paul bonds. |
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