Company on primary markets When a company wants to raise money for long-term investment, one of its first decisions is whether to do so by issuing bonds or shares. If it chooses shares, it avoids increasing its debt, and in some cases the new shareholders may also provide non-monetary help, such as expertise or useful contacts. On the other hand, a new issue of shares will dilute the ownership rights of the existing shareholders, and if they gain a controlling interest, the new shareholders may even replace senior managers. From an investor's point of view, shares offer the potential for higher returns and capital gains if the company does well. Conversely, bonds are safer if the company does poorly, as they are less prone to severe falls in price, and in the event of bankruptcy, bond owners may be paid something, while shareholders will receive nothing.
company on PrImaRy maRKets When a compAnY waNTs to rAise MonEy For loNg-TErm InvEsTMENt, onE of itS fIrst decIsiOns is whEThER tO dO so by issUInG bondS or ShaREs. if IT choOSES sharEs, iT aVoiDS iNcReaSing ItS dEbT, and iN SoMe cAses the New sHAreHolDeRs mAY alSo ProVide Non-MonEtary heLp, sucH as exPertise or uSEfUl conTacTs. oN the OtHer hand, a NEw iSsUe Of shaRes will dilutE thE owNErsHip riGhTS oF tHE ExistINg ShAreHOldErs, anD if they gain A ContrOLLINg inTerEsT, tHE new shaReholders mAy even replACE sEnioR maNagerS. fROM an invEsToR's PoInt of VIew, shAres OFfEr tHE poTENTIAl for hiGher returnS and capiTAL GaIns if tHe comPany does well. ConVErseLy, boNds aRe saFer if tHe compaNy dOes poorly, aS they Are lesS pronE tO seVERE fAlLs in pRice, and iN tHE EVent Of bAnkRuptcY, Bond oWners maY be Paid somethiNg, whIle shaREhOldErS wIll receive nothiNg.