Investment banks, especially those of high standing, exercise caution before handling a new issue of securities, and therefore an investigation is first conducted. In the case of states or municipalities the investigation may be omitted entirely, but where it is carried out such subjects are analyzed as the taxing power of the government, the limit of its debt, and the earning ability of the population. Stability is an additional factor to be considered when the status of a foreign government is concerned. The examination of a public-service corporation such as a gas or an electric company emphasizes the extent of the franchise, the nature of the local population, the kind of industries, and public control over rates.

In the case of a large railroad issue a more comprehensive survey must be made, which, because of the expense involved, can be undertaken only by the wholesale houses. For this work it is necessary to retain the services of many experts. Engineers complete a physical inventory of the road, lawyers examine its franchises and leases as well as the legal status of securities already outstanding, while accountants verify the statements submitted by the corporation. Due consideration is also given to such general factors as the earnings of the road, the ability of the management, and the competition of other lines.

The same factors are considered in analyzing a new industrial enterprise. In this case the intensity of the investigation will depend upon whether the prospective issuer is a newly formed organization seeking funds for promotion purposes or an old-established corporation with securities already outstanding, and in need of money for the enlargement of its business. In general, investment houses handle municipal, public utility, and railroad issues to practically any amount, but only a few banks of standing are willing to take over large issues of industrial corporations. Hence some lines of industries are unable to bring their securities on the market through investment houses of standing, and must therefore sell them directly to the public or through bankers and brokers of less-known standing. If the findings of the investigation prove favorable, the investment house may enter into one of two different business relations with the borrowing corporation. The latter may request the former either to purchase the securities outright at a stipulated price and to sell them to the public through its salesmen and branches, or to insure the sale.