This chapter provides a descriptive overview of corporate financing and the three main types of securities companies issue: common stock, preferred stock, and debt. The chapter also includes a broad introduction to financial markets and institutions. While companies finance a large part of their new investments from internally generated funds, they also use large amounts of externally raised money. Most of this external funding comes from the issuance of either debt or equity.

The simple classification of external financing sources as debt and equity takes away all the details in which these can be different. The debt securities issued by a company can differ in so many little details, with some important consequences for the firm. Even equity issues can have different classifications based on voting rights. All these have given rise to a number of technical terms used in the world of corporate finance. The chapter explains these terms and the context of the use for them. Students of finance are expected to have at least a passing familiarity with this language of investment banking. The list of the main new terms and the set of fill-in questions should prove to be very useful in learning these terms.

The first section of the chapter provides a description of the changing patterns of corporate financing in the U.S. The section also includes a very interesting comparison of the financing patterns across countries. It is important to realize that comparisons of this type have to take into account the differences in accounting rules and conventions followed in different countries. Each of the next three sections covers common stock, debt, and preferred stock. This is followed by a short introduction to financial markets and institutions and their role in the economy.