Definition of Corporate Issuer
A corporate issuer refers to companies or any other entities that issue stocks, bonds, or other financial instruments to fund their operations. These companies typically need external monetary assistance to run day-to-day activities, grow their businesses, or address short-term financial needs. According to a Franklin Templeton blog in July 2023 (Capital Markets), U.S. and non-U.S. corporate issuers raised an estimated $7.2 trillion through new bond issuance in the first half of June, compared with just under $1.7 trillion for equity offers. This shows a continued reliance on global capital markets by companies during a period of stress, disruption, and opportunity. Investors dictate pricing, and corporates are increasingly vulnerable as more control is in the hands of external parties.
Methods of Financing for Corporate Issuers
The main methods corporate issuers use to raise funds are illustrated by specific data and case studies:
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Issuing Stocks: In 2022, the U.S. stock market had a $142 billion IPO year, the third-largest on record. IPOs help companies raise funds and increase visibility. In 2021, Rivian went public and raised nearly $13 billion, making it the largest IPO globally for that year.
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Issuing Bonds: According to SIFMA (Securities Industry and Financial Markets Association), global corporate bond issuance in 2023 stood at $7.2 trillion, with approximately 60%, or $4.32 trillion, attributed to corporate bonds. Apple issued $8.5 billion worth of bonds at historically low interest rates in 2020, raising new capital for high-quality companies via bond markets.
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Hybrid Instruments: Some companies issue securities with characteristics of both debt and equity, such as convertible bonds. According to Dealogic, global businesses raised approximately $157 billion through convertible bonds by 2021. In 2020, Tesla sold $500 million of convertible bonds, effectively lowering financing costs by leveraging its rising stock price.
CFA Exam Content Related to Corporate Issuers
The Corporate Issuer section of the CFA exam mainly concentrates on strategies for corporate financing and capital structure with regard to dividend policies and corporate governance. Below is a detailed quantitative analysis:
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Capital Structure: Capital structure is a central issue in corporate finance management. Thomson Reuters suggests that the typical blend of debt to equity capital for an S&P 500 company in 2022 was 43% and 57%, respectively. General Electric saved approximately $1 billion in interest by restructuring its capital structure and reducing the debt ratio from 68% to 53% during the fiscal year ending in December.
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Corporate Governance: Robust corporate governance enables companies to access financing more efficiently. According to Institutional Shareholder Services (2022), companies with high governance scores were able to issue bonds at rates 0.5% below market levels. For instance, Microsoft issued $1.7 billion in bonds in 2019, benefiting from its AAA credit rating and strong corporate governance, with an ultra-low interest rate of just 2.375%.
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Dividend Policy: Another focus of the CFA exam is how companies distribute dividends or reinvest their profits. According to JPMorgan data from 2022, nearly 84% of S&P 500 firms pay dividends, with an average yield of 2%. In 2023, Coca-Cola paid a $1.76 per share dividend and returned around $7.5 billion in cash to shareholders, showcasing one of the most consistent dividend policies on Wall Street.
Significance of Corporate Issuers for Investors
Understanding the behavior of corporate issuers is crucial for investors, as it influences expected returns and risk profiles when purchasing corporate securities. The following breakdown offers specific data-based insights:
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Equity Investors: Stock investors focus on a company’s growth potential and dividend yields. According to FactSet, the average shareholder return for S&P 500 companies in 2023 was 11.5%, while tech giants like Apple and Microsoft achieved shareholder returns exceeding 20%, driven by rising earnings and strong dividend payouts.
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Bond Investors: Bond investors are primarily concerned with a company’s ability to repay debt and the yields on their investments. According to Moody’s 2023 data, AAA-rated corporate bonds yielded 2.1% on average, while B-rated corporate bonds offered yields as high as 6.8%. AT&T issued a series of 10-year bonds in early 2022 with an interest rate of 4.75%, attracting significant demand from investors seeking higher yields.
