Investment Banking vs. Corporate Finance: An Overview
A generally-accepted distinction between corporate finance roles and investment banking roles is that a corporate finance professional deals with day-to-day financial operations and handles short- and long-term business goals, while an investment banker focuses on raising capital in the public markets. An investment banker also runs private placements of equity and debt capital and conducts merger and acquisition (M&A) deals.
It could also be said that investment banking roles are tasked with growing a company from a capital perspective, while the corporate finance industry is employed in order to manage a company's capital and strategic finance-related decisions.
- 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, while an investment banker focuses on raising capital.
- The academic and experience credentials necessary to become an investment banker are higher than for most corporate finance positions.
- Investment bankers are typically paid better than corporate finance jobs, particularly at more senior levels.
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. There are two standard paths to an investment banking career: attend a noted undergraduate university and enter on the ground level as an analyst, or go to business school, earn a Master of Business Administration (MBA) graduate degree, and break through as an associate.
In their undergraduate studies, those individuals interested in becoming investment bankers should focus on degrees in finance, economics, banking, or investment analysis. Most people either accept internships or take low-level positions at large banks to gain experience, and many work as analysts before receiving their MBA.
Major investment banks, especially in New York and London, focus their recruiting efforts on the best-performing prospects from Ivy League schools—although it's not unheard of for exceptionally analytical prospects with degrees in challenging subjects such as biopharmaceuticals or other medical fields to make their way into the industry.
Even junior investment banking analysts can expect compensation of $100,000 to $120,000 a year when signing bonuses and performance-based bonuses are factored in, according to data from Wall Street Oasis.
Corporate finance is a catch-all designation for any business division that handles financial activities for a firm. In some instances, it can be difficult to differentiate corporate finance roles from investment banking roles. For example, an investment banking firm might have a corporate finance division.
Many different viable career paths can be found in corporate finance because there are so many different kinds of jobs in the field. Individuals can find their niches as accountants, advisors, account managers, analysts, treasurers, business analysts, or any number of other jobs. There are a few necessary skills, such as an understanding of corporate finance and effective communication skills.
Higher-level investment bankers, such as managing directors, can make upwards of $400,000 a year.
A financial analyst, technically involved in investment banking, could expect a median salary of $83,660 in 2020 (the latest data available), according to the Bureau of Labor Statistics (BLS). Meanwhile, a chief financial officer and other top professionals in the corporate finance field enjoyed a median salary of $107,680 in 2020, according to the BLS.
According to the BLS, financial analyst positions are expected to grow at a rate of 6% between 2020 and 2030, while corporate finance executive positions are expected to grow at a rate of 8% between 2020 and 2030.
Many choose to walk away from investment banking careers after a few years due to burnout. Investment banking deals tend to be executed by small teams—three to seven is standard—with one analyst, one or two associates, one vice president, and a lead managing director.
Workflow is bottom-up, and those lowest on the rungs are responsible for an exceptional amount of effort. Tales abound of investment analysts and associates working 80- to 100-hour weeks. An 80-hour week works out to five 16-hour days or seven 11.5-hour days.
Those debating a career in investment banking versus a career in corporate finance have two overriding considerations: workload and salary. The prestige and compensation of investment banking jobs are alluring to many, so intense working hours are a small hurdle to clear.
Corporate finance jobs aren't easy to get, but they're 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.
When considering the future of these two jobs, it's important to keep in mind that both of these professions are at risk of changing significantly, as a result of artificial intelligence, data science, and the power of computing. Many tasks might be performed by algorithms and only higher-level types of abstraction and communication skills will remain the privilege of human investment bankers and corporate finance professionals.
Is Corporate Banking Different From Investment Banking?
Yes, 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) or a merger or acquisition.
Is Corporate Finance a Good Pathway to Investment Banking?
In general, corporate finance is not 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: (1) to help companies raise capital through an initial public offering (IPO) and (2) to help companies with mergers and acquisitions. Investment bankers analyze companies, conduct valuations, perform financial modeling, and evaluate financial statements.