The companies with a strong market position can opt for debt route as they can negotiate favorable terms from the lenders.
Capital market provides a platform to the companies for issuing new securities like debt and equity. The funds raised from the capital market are used for the long term needs of the business. It consists of primary and secondary markets. The new securities are issued in the primary markets and the trading of these securities takes place in the secondary markets.
Capital market plays a major role in the economic and financial development of a country. It helps the entrepreneurs by providing them with the platform to raise capital for their business. It acts as an intermediary between the issuers and subscribers of equity. In the absence of the capital markets many of the investment opportunities would have remained untapped. Besides acting as a financial intermediary it monitors the activities of the market participants (Tadesse , n.d.). This is done to ensure that the funds raised are used for the purpose for which it has been raised.
The growth of an economy depends on the presence of an efficient capital market that can mobilize the savings of individuals and also provide the opportunity of offshore financing. With the advancement in the financial markets many businesses can access the overseas markets for the issue of their shares (DUKE The Fuqua School of Business, n.d.).
The price of the securities trading on the stock exchange gives valuable information regarding the worthiness of an investment. This also leads efficiency in firm management. As the market price of a firm’s security reflects its fundamentals, the management pays special attention to business activities. By acting as a link between the investors and entrepreneurs, the capital markets facilitate the undertaking of risky projects which would