Plekhanov Russian Economic Academy

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Introduction

In this report we focus on the long-term financing by issuing shares and dividend policy of the company. We consider the institutional design of capital market, Stock Market Exchange and Alternative Investment Market; fundamental theories of paying dividend and factors which influence

Dividend Policy of the companies.

The main objective of this report is to develop a better understanding of the problems faced by start-up firms seeking capital financing and paying percentage (dividends). In addition, we try to identify the consequences of shortcoming and overplus of the dividend payouts for value of corporation (for value of share) and individuals

(shareholders).

The urgency of this question is obvious, because firms need capital to finance product-development or growth and must, by a lot of factors

(interest rate, time period and etc), obtain this capital largely in the form of equity rather than debt. So the issuing of shares and dividend policy is one of the widest research overseas and I hope Russian economists don’t be backward in that list.

I. ‘Going Public’ and the Securities Market

1. ‘Going Public’

Most private companies that experience the rapid growth have reached the stage when existing shareholders’ private resources are exhausted, retained profit is insufficient to cope with the rate of expansion, and further borrowing on top of your current amount of loans will probably be resisted by lenders until you have a more substantial layer of equity capital. One solution to this financial problem is to retain the services of a financial intermediary – usually a merchant bank – to find a few private individuals or financial institution such as an insurance company or an investment trust that is willing to subscribe more capital. This is known a private placing. And, of course, there are some advantages and disadvantages of going public.