Investment banking provides services such as issuing financial securities or managing mergers. Companies may outsource these activities to investment banks for objectivity in decision analysis. All companies need investment banks to meet legal requirements for issuing securities, but small businesses can use public accounting firms or consultants instead.
Investment banking offers companies a variety of business services, such as issuing financial securities or managing mergers or corporate reorganizations. The link between corporate finance and investment banking exists because the bank needs to determine the financial returns of the activity. Different corporate finance activities include payback period and net present value among others. Using an investment bank outsources these activities from the company.
Large organizations may have a corporate finance department or a team of employees to complete these activities. This can be a benefit in terms of lower costs, but the company may lose objectivity when evaluating major business projects or operational disruptions. This is the reason for the outsourcing link between corporate finance and investment banking. Hiring an investment banker to review or evaluate changes will often improve objectivity in the decision analysis phase. Publicly traded companies are often heavy users of investment banking services.
A portion of corporate finance activities includes creating and maintaining the capital structure. This structure represents the amount of debt and equity financing that a company uses to pay for large business projects. When equity financing is used, a company will often sell shares to the public or specific investors. Either way, an investment bank is generally necessary to meet the legal requirements for issuing securities. All companies would need an investment bank for this purpose, establishing a link between corporate finance and investment banking.
Although most companies that need funds or seek advice on mergers will use investment banking, other companies could use these services as well. For example, a company might hire an investment bank to find business partners for a merger or acquisition process. This is a type of corporate finance preemptive move. Companies that are financially weak often use an investment bank to look for suitors who are willing to buy a large stake in the business. Even though a company goes through this phase of corporate finance and investment banking research, it does not mean that the company will go through a merger or acquisition.
Not all companies will need to use an investment bank to evaluate corporate finance activities. Small and medium-sized businesses can use a public accounting firm or consultant to evaluate these activities. This saves money for small businesses and often provides them with a professional service to use for other activities or projects. In other cases, a company may discover that it does not need investment banking services. Therefore, corporate finance activities will not create a link to investment banking.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
