CHAPTER XXIV
SECURITY EXCHANGES
Relation to Corporation Finance.—To the ca?uul reader, it might appear
that there is only remote relationship between security exchanges and the
financing of corporations. The financing of each corporation takes place
first. After the corporation has enjoyed a sufficient period of successful
operation to demonstrate its earning capacity and to permit its securities to
become seasoned, it may succeed in getting them listed on some exchange.
Until it reaches the degree of stability that this statement suggests, it would
appear that the security exchange has little to offer to it. As u matter of
fact, most corporations never succeed in getting their securities listed. Some
stay out of the organized markets through choice and some through inability
to qualify.
But this is not the whole story. While the influence of the stock
exchanges upon the issuance of most securities i? indirect, it is nevertheless
important. For example, except for the wide publicity given to the changing
prices of securities on the organized exchanges, it is very doubtful if millions
of people would be actively interested in the purchase of stocks and bonds.
Any device that results in facilitating the purchase and sale of securities or
in broadcasting information about the trends in security prices increases
interest in ownership of stocks and bonds. The publicity resulting from
exchange transactions has an educational and advertising effect. People
who might not become interested in the purchase of stocks and bonds learn
something about them from daily stock quotations and from newspaper and
radio publicity about market activity. Interest frequently develops into
action merely through the contagious influence of watching prices go up.
The purchase of particular stocks or bonds may not result from radio
announcements or newspaper reading. But all the publicity surrounding
organized stock exchanges widens the interest in the subject of stocks and
bonds and helps to condition the prospective customer for a favorable
response when he is approached by stock and bond salesmen.
Furthermore, the undiscriminating purchaser of securities does not draw
sharp lines of distinction between listed and unlisted stocks and bonds.
From conversations with friends and acquaintances, he knows that they are
purchasers of securities. The fact that they may confine their purchases to
those listed on organized exchanges may not be known to him or, if known,
may have little meaning. He assumes that if he buys any stock or bond and
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