Financing public corporations typically involves a combination of equity and debt financing. Public corporations are companies whose shares are publicly traded on stock exchanges, allowing them to raise capital from a large pool of investors. Here are some common methods of financing used by public corporations:
- Equity Financing: Public corporations can raise funds by issuing equity shares, which represent ownership in the company. When a company goes public through an initial public offering (IPO), it offers its shares to the public for the first time. Subsequently, the shares can be bought and sold on stock exchanges. Public corporations may also issue additional shares through secondary offerings to raise more capital.
- Debt Financing: Public corporations can borrow money by issuing corporate bonds or taking loans from financial institutions. Corporate bonds are debt instruments that pay fixed interest to bondholders over a specified period. These bonds are publicly traded in the bond market. Companies can also take loans from banks or other lenders, which need to be repaid with interest over time.
- Retained Earnings: Public corporations can finance their operations by retaining a portion of their earnings and reinvesting them in the business. Retained earnings are the accumulated profits that a company has not distributed to shareholders as dividends. By retaining earnings, companies can fund their growth, research and development, and other investment activities.
- Government Assistance: In some cases, public corporations may receive financial support or subsidies from the government. Governments may provide grants, low-interest loans, or other forms of financial assistance to promote specific industries, encourage economic development, or support companies in times of crisis.
- Venture Capital and Private Equity: Although less common for public corporations, venture capital and private equity funding can still be utilized. Public corporations seeking additional capital or strategic partnerships may attract investments from venture capital firms or private equity investors, who provide funding in exchange for ownership stakes in the company.
It\’s important to note that the specific financing methods used by public corporations can vary depending on factors such as the company\’s industry, size, financial position, and market conditions. Public corporations often employ a mix of these financing options to meet their capital requirements and optimize their capital structure. Additionally, they are subject to regulatory requirements and disclosure obligations imposed by securities exchanges and financial authorities.
SOURCES OF FINANCE TO PUBLIC CORPORATIONS
Loans and overdrafts: Public corporations can obtain loans and overdrafts from commercial or development banks.
Internally generated revenue: Public corporations can also raise capital from revenue generated internally.
A grant from the government: Most of the funds available to public corporations are mainly from grants given by the government.
Grant from international financial institutions: Public corporations can also derive their fund from some international financial institutions such as the International Monetary Fund (I.M.F.) and African Development Bank (ADB).
A grant from foreign countries: Foreign countries can also give grants or finance for the setting up or running of a public corporation as a special aid, e.g. Britain. United States of America and Japan.