He spoke recently with Ann Brocklehurst. Q. You say stock markets advertise themselves as institutions that promote investment and allow businesses to grow when, in fact, that is only a minor part of what they do. I'd say it's a very, very small portion of what the market's all about.
Firms fund very little of their investment programs on the markets, especially the stock market.
When they do go outside for capital, they go first to banks, then the bond market, and the stock market is at the very bottom of the list. Between 1901 and 1996, net flotations of new stock amounted to just 4 percent of nonfinancial corporations' capital expenditures in the United States. To an extent, it's an exit strategy for firms with venture capital. They see it as a way of cashing out, not a way of raising new capital. It's mostly to let the original set of venture capitalists out with a very substantial profit and to line the pockets of the management team.