Capital Market Overview

Capital Market Overview

The Capital Market is a vast system of financial markets that provide liquidity for corporations. It is a generic term used to describe financial markets such as the stock or bond market that provide access to capital for companies. It can also be used to describe the banking market or the private capital markets which encompass private equity and mezzanine finance. Capital Markets in the US are deep and bountiful and are one of the unique differentiating features of our economy. Much of the tremendous growth in the US economy since the Post war period has been facilitated through technological innovation combined with efficient capital markets. In theory, capital markets are like a faucet that allow money to be allocated to its best use in the economy. In the US, the size of the company often dictates the specific capital market it will participate in. Startup companies are usually in the Venture Capital Market. Established, profitable middle market companies are usually in the banking market. As companies grow in revenue size, they have access to more capital markets including the banking market, private equity capital market and the high yield market. The growth and the stability in the financial markets in the US has contributed to the overall dynamism of the US economy. While the capital markets are not perfect and can become beleaguered, the capital markets in the US offer entrepreneurs an optimal set of financing options to capitalize their growth. The cost of capital in the capital markets often decreases dramatically as a company moves up the size continuum. Smaller companies pay higher interest rates while larger companies pay lower interest rates. This rate asymmetry has increased in the capital markets following the Global Financial Crisis. Yet, with the persistently low Fed rates, and the moderate level of GDP growth, the capital markets appear to be in good shape for the foreseeable future.

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