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Why is capital a more important measure of the size of a securities firm than the...

Why is capital a more important measure of the size of a securities firm than the amount of assets?

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SOLUTION:-

Firm size has been empirically found to be strongly positively related to capital structure.

* The size of investment banking and securities trading is not properly measured byindstry assets because, unlike loans or insurance policies, Investment bankers and securitiesfirms need not permanently hold securities.

* Their purpose is to turn them over quickly.

* Equity capital measures a firm's ability to turnover large issues since firms will only risk limitedamounts of their capital at one time.

* Other measures may include.

  • Level of underwriting volume in particular categories
  • Number of brokers/dealers, availability of electronic trading (securities firms trading activities)
  • Amount of global presence such as overseas offices and foregin transaction

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jeff jeffy answered 2 years ago
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