of financial markets in the United States. This problem area is addressed in Chapter 1.
THE PURPOSE, FUNCTIONING, AND REGULATION
Long term capital is provided to business organizations through the operations of capital markets. It is important and interesting to note that, in the United States, most people associate the capital markets with the trading of common stocks (and, indeed, most of the annual trading activity in the capital markets involve the trading of common stocks); however, most of the long term capital provided to business organizations in the United States through capital markets operations result from bond and debenture activity (Ratner 1988, 3). Most trading of common stocks has little direct impact on the capital structure of American corporations.
One of the primary means of financing new business investment, however, is through the issuance of new common stocks and corporate bonds. When this process is made easy through the existence of efficient capital markets, this type of investment activity is encouraged. In the United States in recent years, far more investment funds have been raised by business through the issuance of corporate bonds than through the issuance of new issues of common stock, although the majority of the trading activity in the capital markets has been in common stocks. The great bulk off trading activity in common stocks, however, involves mature issues, as opposed to new issues, and it is through the new issues that corporations raise investment funds. New issues of corporate stock, however, are a major source of capital for newly public companies.
The securities markets in the United States are regulated by both federal and state laws (Ratner 1988, 8). The first major federal securities legislation was the Securities Act of 1933, which is often referred to as the "truth in securities law" (United States Securities and Exchange Commission 1992, 7). This act requir...