outside investors were protected against excessive withdrawals of funds by the
original owners. As is often the case in such situations, the Class B stock was
called founders’ shares.18.2 The right to vote is often a distinguishing characteristic between different classes
of stock. Suppose two classes of stock differ in but one respect; one class has
voting rights but the other does not.
- The Market for Common Stock
19.1 Some companies are so small that their common stocks are not activity traded;
they are owned by only a few people, usually the companies’ managers. Such
firms are said to be privately owned, or closely held, corporations, and their
stock is called closely held stock. In contrast, the stocks of most larger
companies are owned by a large number of investors, most of whom are not
active in management. Such companies are called publicly owned corporations,
and their stock is called publicly held stock.
19.2 As we saw in Chapter 4, the stocks of smaller publicly owned firms are not listed
on an exchange; they trade in the over-the-counter (OTC) market, and the
companies and their stocks are said to be unlisted. However, larger publicly
owned companies generally apply for listing on an organized security exchange,
and they and their stocks are said to be listed.
19.3 The institutional investors have a heavy influence on the prices of individual
stocks.
- Types of Stock Market Transactions
20.1 Trading in the outstanding shares of established, publicly owned companies:
the secondary market.
20.2 Additional shares sold by established, publicly owned companies: the primary
market.
20.3 Initial public offerings by privately held firms: the IPO (Initial Public
Offering)’- Common Stock Valuation
21.1 Common stock represents an ownership interest in a corporation, but to the
typical investor, a share of common stock is simply a piece of paper characterized
by two features:
21.2 It entitles its owner to dividends, but only if the company has earnings out of
which dividends can be paid, and only if management chooses to pay dividends
rather than retaining and reinvesting all the earnings. Whereas a bond contains a
promise to pay interest, common stock provides no such promise – if you own a
stock, you may expect a dividend, but your expectations may not in fact be met.