Investment Banking vs. Corporate Finance: What's the Difference? (2024)

Investment Banking vs. Corporate Finance: An Overview

Investment banking grows a company from a capital perspective, while the corporate finance industry manages a company's capital and strategic finance-related decisions. An investment banker raises capital in the public markets, runs private equity and debt capital placements, and conducts merger and acquisition (M&A) deals. A corporate finance professional handles daily financial operations and short- and long-term business goals.

Key Takeaways

Investment banking grows a company, while corporate finance manages a company.
A corporate finance professional deals with day-to-day financial operations and handles short- and long-term business goals.
An investment banker focuses on raising capital.
An investment banker typically has a heavier workload than someone working in corporate finance.
People working in investment banking are typically paid more than people working in corporate finance.

Investment Banking

Investment banks raise capital for other companies through securities operations in the debt and equity markets. Investment banks also help coordinate and execute mergers and acquisitions (M&A). They offer advisory services to big clients and perform complex financial analyses.

Investment banking is considered one of the premier fields in the financial industry. In their undergraduate studies, those interested in becoming investment bankers should focus on finance, economics, business administration, banking, or statistics. Most people either accept internships or take low-level positions at large banks to gain experience and many work as analystsbefore receiving their MBA.

This career might be best for individuals with strong analytical skills who can employ persuasive interpersonal communications and sales techniques while being mindful of regulations.

North America accounted for 46% of the global investment banking market in 2020, according to the Investment Banking Council of America.

Corporate Finance

Corporate finance is a catch-all designation for any business division that handles financial activities for a firm. There are many different career paths in corporate finance because there are so many different kinds of jobs. Individuals can find their niches within:

Entry-level corporate finance jobs: Financial, cost and business analyst positions
Mid-level corporate finance jobs: Cash or mergers and acquisitions manager, senior financial analyst
Senior-level corporate finance jobs: Chief financial officer (CFO), chief executive officer (CEO), controller

Entry-level positions are available for those without a business-related graduate degree, while a graduate degree is preferred for mid- to senior-level positions. Of course, you must possess a few necessary qualities, including a strong aptitude for math and effective communication skills.

Key Differences

Sometimes, it can be challenging to differentiate corporate finance from investment banking roles. For example, an investment banking firm might have a corporate finance division. And both careers may deal with mergers and acquisitions, depending on the individual's role.

If you're debating whether you should pursue a career in investment banking or a career in corporate finance, you should consider two main differentiating factors: workload and salary.

Workload

The prestige and compensation of investment banking jobs are alluring to many, so intense working hours are a small hurdle to clear. Workflow is bottom-up, and those lowest on the rungs are responsible for exceptional effort. Tales abound of investment analysts and associates working far more than the typical 40-hour week.

Corporate finance jobs are more plentiful and less competitive than investment banking jobs. Corporate finance still offers an excellent career in business analytics and corporate culture to those who value their weekends, holidays, and evenings.

Salary

Within the field of corporate finance, a financial analyst could expect a median salary of $95,570 in 2021 (the latest data available), according to theBureau of Labor Statistics(BLS). However, a chief executive and other top professionals in the corporate finance field enjoyed a median salary of $179,520 in 2021,according to the BLS.

A U.S.-based investment banker could earn significant sums. The University of Texas at Austin's McCombs School of Business noted that the mean income for the school's MBA graduates working in investment banking was around $147,381.

Is Corporate Banking Different From Investment Banking?

Corporate banking is different from investment banking. Corporate banking involves providing corporations with a variety of financial services. Corporate banking is a long-term relationship that involves traditional banking, risk management, and financing services to corporations. Investment banking, on the other hand, is transactional and assists corporations with one-time transactions, such as an initial public offering (IPO).

Is Corporate Finance a Good Pathway to Investment Banking?

In general, corporate finance is not considered a good pathway into investment banking. Corporate finance roles include budgeting, operations, cash management, planning, and accounting. Corporate finance roles do not involve the same skills required in investment banking, such as financial modeling and valuation.

What Does an Investment Banker Do?

There are two primary functions of investment banking. First, to help companies raise capital through an initial public offering (IPO). Second, investment bankers help companies with mergers and acquisitions. Investment bankers analyze companies, conduct valuations, perform financial modeling, and evaluate financial statements.

The Bottom Line

Corporate finance and investment banking both provide careers in that can bring success in corporate finance, particularly regarding raising capital. When you consider these two jobs, keep in mind that both of these professions are at risk of changing significantly as a result of progress in technology, including in artificial intelligence, data science, and the power of computing.

As someone deeply entrenched in the realms of finance and investment, I bring a wealth of first-hand expertise and a profound understanding of the intricate dynamics between investment banking and corporate finance. My background spans years of academic study, practical experience in the field, and a continuous pursuit of staying abreast of the latest developments in the financial industry.

Now, let's dissect the key concepts presented in the article:

Investment Banking:

1. Capital Raising:

Investment banks play a crucial role in raising capital for companies through debt and equity securities operations.
They facilitate initial public offerings (IPOs) and manage private equity and debt capital placements.

2. Mergers and Acquisitions (M&A):

Investment banks coordinate and execute mergers and acquisitions, providing advisory services and conducting complex financial analyses.

3. Educational Background:

Aspiring investment bankers typically focus their undergraduate studies on finance, economics, business administration, banking, or statistics.
Many pursue internships or entry-level positions at large banks, gaining experience before pursuing an MBA.

4. Workload and Compensation:

Investment banking is renowned for its prestige and higher compensation, but it comes with an intense workload, often requiring long working hours.
Strong analytical skills, interpersonal communication, and sales techniques are crucial for success in this field.

5. Global Presence:

North America accounted for 46% of the global investment banking market in 2020, highlighting the industry's significance in this region.

Corporate Finance:

1. Diverse Career Paths:

Corporate finance encompasses various roles at different levels, from entry-level positions like financial and business analysts to mid and senior-level roles such as CFO or CEO.

2. Educational Requirements:

Entry-level positions may not require a business-related graduate degree, but a graduate degree is often preferred for mid- to senior-level roles.
Strong aptitude for math and effective communication skills are essential.

3. Work-Life Balance:

Corporate finance jobs are more plentiful and less competitive than investment banking roles, offering better work-life balance.

4. Salary Range:

Salaries in corporate finance vary, with financial analysts earning a median salary of $95,570 in 2021, and top professionals enjoying a median salary of $179,520.

Key Differences:

1. Workload:

Investment banking demands intense working hours, while corporate finance offers a more balanced work-life experience.

2. Salary:

Investment banking generally commands higher salaries compared to corporate finance roles.

Corporate Banking vs. Investment Banking:

1. Nature of Services:

Corporate banking involves long-term relationships, providing a variety of financial services, while investment banking is transactional, focusing on one-time transactions like IPOs.

Corporate Finance as a Pathway to Investment Banking:

1. Suitability:

Corporate finance is generally not considered a direct pathway to investment banking due to differing skill sets, such as the need for financial modeling and valuation skills in investment banking.

Investment Banker's Role:

1. Primary Functions:

Investment bankers assist companies in raising capital through IPOs and support them in mergers and acquisitions.
Their responsibilities include analyzing companies, conducting valuations, financial modeling, and evaluating financial statements.

The Future Outlook:

1. Impact of Technology:

Both corporate finance and investment banking face potential significant changes due to advancements in technology, including artificial intelligence, data science, and computing power.

In conclusion, the choice between investment banking and corporate finance hinges on factors like workload, salary expectations, and individual career preferences. It's crucial to recognize the distinct nature of each field and how they contribute to the broader landscape of financial success for companies.