Capital-market stakeholders refer to groups that provide capital companies. They affect the availability and cost of company capital. Examples are shareholders, venture capitalists, banks, and debt investors.
Classification of capital-market stakeholders
Capital market stakeholders consist of:
- Shareholders can be either venture capitalists, individuals, companies, or stock investors. They can buy common company shares or preferred company shares.
- Creditors, such as banks and bond investors. They gave the company debt and, as a consequence, needed the company to repay it. Debt can be in the form of loans, bonds, and commercial paper.
How do capital-market stakeholders affect the company?
Companies often need external capital to meet funding needs for business expansion. New plant construction, acquisition, and purchase of machinery require more money than is generated from the company’s internal cash. They do this, for example, by issuing new shares or debt securities. They can also seek loans from banks.
Capital-market stakeholders provide capital to the company. Shareholders give the company equity capital. Meanwhile, creditors offer debt capital.
Taking external capital has consequences for capital costs, consisting of the cost of equity and the cost of debt. By contributing these capital, investors want the company to be able to increase its wealth. That way, they hope to get a higher return than the level of risk they receive with the investment.
Impact of unsatisfied creditors
Disgruntled lenders can impose tighter agreements on subsequent loans. They can charge higher interest, considering the high risk of default. Higher interest means more expensive funds. Companies must spend more money to pay back new loans.
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Even when unable to satisfy them, the company must file for bankruptcy. Creditors can threaten to choose options to push the company into bankruptcy. The threat itself may be enough to convince companies to pay to prevent closure. If the company is placed in liquidation, the liquidator will realize all available assets, and this will be shared among all creditors.
And, when shareholders are not satisfied
When a company does not provide an adequate return, shareholders can sell their shares. For a public company, a sell-off can cause a company’s stock price to fall.
Often, companies want to issue new shares to raise funds. Plummeting stock prices make it difficult for companies to raise funds on target.
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Some shareholders with significant ownership can also influence the company’s strategic decisions. They can force the board of directors to improve company performance and other short-term measures such as efficiency by suppressing the salaries of employees and executives. It often goes against the wishes of managers and other shareholders who focus on building competitiveness and returns in the long run.