Investment bankers are sometimes viewed in a negative light in our society partly because of the large sums of money that they can make in their careers. While the profit motive is a necessary part of a capitalistic society, the amounts that successful bankers make can seem incredibly high compared to the average workers’ wages which can lead many to criticize them. Having said that, investment bankers have a very positive impact on society and this article will discuss some of the positive things that investment banks can do for society as a whole.
Investment bankers add liquidity to markets and allow for the greater functioning of capital markets with their increased market activity. This provides the average investor with the ability to better be able to liquidate a position at the fair market value of their shares. Investment bankers tend to hold significant amounts of stock in a company and hold it for long periods of time helping to guide corporate actions in a way that is more shareholder friendly. Takes James Dondero of Highland Capital as a good example. When he recently purchased shares of NexPoint Residential trust the stock priced was strengthened by this insider purchase of shares. He showed outside investors that he was willing to put his own money behind the company and he therefore believes in the company’s fortunes. Having a large institutional investment banker who is both a shareholder and a member of the board of directors means that he can enact significant measures that adds to the value of the company, which is good for all investors in the company.
Investment bankers provide critical funding to businesses that can allow them to survive difficult financial periods that they might otherwise not make it through. This allows them to stay in business and continue to both hire employees and grow their business when the market turns around. Further, it keeps employees at work and increases the tax coffers for governments, both of which are beneficial to the overall societal good.
Investment bankers often have a longer term horizon than the average investor which lets them invest in companies that could earn significant returns, but at some risk. A great example would be biotechnology companies that are working to design new medical treatments. These companies are in need of the financing that investment bankers provide to help support their operations while they are researching. Without this critical financing many of these entities would not be able to survive to develop the drugs that contribute so much to societal health.
Investment bankers therefore have a significant role in society that helps to accomplish many positive things. Society should consider these positive stories and the role they play before issuing criticism.