Corporate finance for the pre-industrial world began to emerge in the Italian city-states and the low countries of Europe from the 15th century.
Public markets for investment securities developed in the Dutch Republic during the 17th century.
Corporations may rely on borrowed funds (debt capital or credit) as sources of investment to sustain ongoing business operations or to fund future growth.
Debt comes in several forms, such as through bank loans, notes payable, or bonds issued to the public.
When companies reach maturity levels within their industry (i.e.
companies that earn approximately average or lower returns on invested capital), managers of these companies will use surplus cash to payout dividends to shareholders.Investments should be made on the basis of value-added to the future of the corporation.Projects that increase a firm's value may include a wide variety of different types of investments, including but not limited to, expansion policies, or mergers and acquisitions.By the early 1800s, London acted as a center of corporate finance for companies around the world, which innovated new forms of lending and investment.The twentieth century brought the rise of managerial capitalism and common stock finance.Managers must do an analysis to determine the appropriate allocation of the firm's capital resources and cash surplus between projects and payouts of dividends to shareholders, as well as paying back creditor related debt.Choosing between investment projects will be based upon several inter-related criteria.(3) If no growth is possible by the company and excess cash surplus is not needed to the firm, then financial theory suggests that management should return some or all of the excess cash to shareholders (i.e., distribution via dividends).This "capital budgeting" is the planning of value-adding, long-term corporate financial projects relating to investments funded through and affecting the firm's capital structure.Although it is in principle different from managerial finance which studies the financial management of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.Correspondingly, corporate finance comprises two main sub-disciplines.