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Chapter 4 The Share Market and the Corporation Websites: .au .au Learning Objectives Understand the nature of corporations and reasons for public listing Discuss the role of primary and secondary markets in equity financing Explain the derivatives and interest rate roles of a stock exchange Understand the electronic trading and settlement systems for share market transactions Explain the importance of information flows for share market efficiency Identify the main regulators of the share market Explain the role of the private equity market Chapter Organisation 4.1 The Nature of a Corporation 4.2 The Stock Exchange 4.3 The Private Equity Market 4.4 Summary 4.1 The Nature of a Corporation Share market A formal exchange facilitating the issue, buying and selling of equity securities Publicly listed corporation A company whose shares are quoted and traded on a formal stock exchange Ordinary share The principal form of equity issued by a corporation, which bestows a claim to residual cash flows and ownership and voting rights 4.1 The Nature of a Corporation (cont.) The corporation differs from other business forms Ownership claims are widespread and easily transferable Owners (shareholders) do not affect the day-to-day affairs of the company Shareholders’ liability is limited to: the issue price of shares of a limited liability company any partly paid portion of shares of a no-liability company 4.1 The Nature of a Corporation (cont.) Advantages of the corporate form Can obtain large amounts of finance at a relatively cheap cost The liquidity of securities facilitates investor diversification and encourages investment in corporate securities Separation of ownership and control facilitates: appointment of specialised management greater effectiveness in the planning and implementation of strategic decisions 4.1 The Nature of a Corporation (cont.) Advantages of the corporate form (cont.) ‘Perpetual succession’—the corporate form is unaffected by cha