Читать книгу Equity Markets, Valuation, and Analysis - H. Kent Baker - Страница 55

To summarize, the financial markets and the economy differ but are closely related. The financial markets provide a place for both investing excess funds as well as obtaining funds to meet funding needs. Well-functioning secondary markets provide investors with information, low-cost trading, and liquidity. Without such markets, an economy would suffer because investors would be much less inclined to invest their money.

Equity investments provide investors with a claim of ownership and a residual claim on assets and cash flows. An efficient equity market enables firms to obtain funds at lower costs than in an inefficient market and to borrow funds at lower costs. Lower costs with fixed-cost debt financing can magnify earnings, thus providing even more economic benefit than possible with variable-cost equity funding.

When an economy is strong, the magnification of earnings can lead to more demand for products and services, which in turn leads to higher employment and, ultimately, greater consumer spending as well as consumer and business investment. Under these conditions, the economy continues to grow. When an economy is weak, leverage, which is a mechanism that magnifies gains in a boom and losses in a recession, can magnify losses through the following chain: demand for products and services falls, employment situations worsen, and both business and consumer investments decline as a result of less consumer spending.

In conclusion, the financial markets and the economy are related. Good economic conditions lead to investment and growth, while weak economies lead to reductions in investment funding and lower growth.