{"id":160577,"date":"2025-09-26T00:44:12","date_gmt":"2025-09-26T00:44:12","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/160577\/"},"modified":"2025-09-26T00:44:12","modified_gmt":"2025-09-26T00:44:12","slug":"markets-help-companies-finance-in-more-ways-than-one","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/160577\/","title":{"rendered":"Markets Help Companies Finance in More Ways than One"},"content":{"rendered":"

You might think stock markets\u2019 biggest role in financing companies<\/a> happens on the day of their initial public offering (IPO).\u00a0<\/p>\n

Although IPO day is important to each company, data suggests that public markets<\/a> see more company cash flows from secondary issues, buybacks and dividends.\u00a0<\/p>\n

IPOs are smaller than secondaries<\/p>\n

The annual SIFMA handbook<\/a> always includes interesting data across asset classes and countries.<\/p>\n

One chart that is interesting to me, working at a listing exchange, is below. It shows that IPO proceeds<\/a> are actually a fraction of all capital raised by the U.S. stock market each year \u2014 even in a \u201cbig\u201d year for IPOs, like 2021 (note that the SIFMA data excludes special purpose acquisition companies, or SPACs).<\/p>\n

For example, last year, IPOs<\/a> raised a total of $30 billion, while secondaries raised almost $170<\/a> billion.<\/p>\n

Raising additional capital, for new acquisitions or projects, is another benefit of being a public company. Typically, secondaries are completed overnight, at a small discount to the closing price that day.<\/p>\n

Chart 1: U.S. market secondary trades add to much more than IPOs\u00a0<\/p>\n

\"U.S.<\/p>\n

Buybacks are bigger than secondaries<\/p>\n

Of course, companies don\u2019t always need to raise capital. Sometimes they want to return free cash flow to investors.<\/p>\n

One way to do that is via buybacks. According to data from the Wall Street Journal<\/a>, companies spend around $1 trillion each year on buybacks. That\u2019s significantly more than the value of secondary finance raised.<\/p>\n

Interestingly, other data from Bloomberg<\/a> suggests that buyback spending is relatively concentrated, with the top 11 companies accounting for almost $500 billion of announced buybacks.<\/p>\n

Chart 2: Buyback activity adds to even more than cash raises\u00a0<\/p>\n

\"Buyback<\/p>\n

Dividends are similar in size to buybacks<\/p>\n

Another way to return cash to shareholders is via dividends.<\/p>\n

The data below, from Goldman Sachs, shows that dividends are similar in size to buybacks. Importantly, the data also shows dividends are typically very consistent over time.\u00a0<\/p>\n

In contrast, in periods of recession, when sales typically fall, most companies significantly reduce buybacks. That helps them maintain cash flows for operations \u2014 surviving downturns. It also makes buybacks more cyclical.\u00a0\u00a0<\/p>\n

Chart 3: Share of cash flow usage by companies over time\u00a0<\/p>\n

\"Share<\/p>\n

Companies manage financing in many ways<\/p>\n

The data shows that although IPOs are important to each company when they happen, public markets also allow companies to efficiently raise capital<\/a> from and return capital to investors \u2014 often at or near the prevailing market price.<\/p>\n

That\u2019s a critical way public markets help make investing, and asset allocation, even more efficient.\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"You might think stock markets\u2019 biggest role in financing companies happens on the day of their initial public…\n","protected":false},"author":2,"featured_media":160578,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[84,467,56,54,55],"class_list":["post-160577","post","type-post","status-publish","format-standard","has-post-thumbnail","category-markets","tag-business","tag-markets","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/160577","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=160577"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/160577\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/160578"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=160577"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=160577"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=160577"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}