Equity Chapter 12 January 15, 20161Chapter 11 - Equity Financing

Crosslisting  reduce information asymmetry increases share price lower WACC  improve liquidity larger primary market larger secondary market  hedge operating risk denominate both assets and liabilities in terms of the same currency January 15, 20162Chapter 11 - Equity Financing

Depository receipts  negotiable certificates issued by foreign bank  backed by underlying security  traded in secondary markets  representing a multiple of underlying shares traded in & dividends paid in foreign currency terms DRs traded in accordance with foreign securities regulations sponsored (firm)- unsponsored (investor) January 15, 20163Chapter 11 - Equity Financing

Cross listing  Listing shares on different country exchanges  Purpose of crosslisting Improving liquidity  More potential investors  International recognizability Eliminate mispricing (underpricing) Establish secondary market shares offered for foreign acquisitions January 15, 2016Chapter 11 - Equity Financing4

Relative market liquidity  Value of trades in the year 2002 NYSE $10,311,156,000,000 (2,366) NASDAQ $7,254,594,000,000 (3,649) LSE $4,001,340,000,000 (2,274) Euronext $1,988,359,000,000 (1,114) Tokyo $1,564,244,000,000 (2,154) Deutsche $1,212,302,000,000 (934) Spain $653,229,000,000 (1,015) Italy $634,635,000,000 (295 Swiss $599,749,000,000 (398) Taiwan $633,632,000,000 (641) Korea $596,632,000,000 (679) January 15, 2016Chapter 11 - Equity Financing5

Empirical evidence  share price reaction to crosslisting negative effects to US firms listing in continental Europe positive effects to US firms listing in London, Tokyo, Toronto positive effects for foreign firms listing in the US  the larger a firm relative to its domestic market, the more likely it was to crosslist elsewhere January 15, 20166Chapter 11 - Equity Financing

Barriers to crosslisting  disclosure requirements vary with markets  rules in N. America informationally onerous expensive feed information to market  rules elsewhere less stringent reporting less frequent lower disclosure requirements January 15, 20167Chapter 11 - Equity Financing

The New York Stock exchange  specialists trade on floor hold positions for liquidity  transaction costs (spread) function of volume function of volatility  limit orders take precedence over dealer orders January 15, 20168Chapter 11 - Equity Financing

Other exchanges  London exchange less liquid higher transaction costs limit orders not executed chronologically lower regulatory costs  more foreign firms listing  Tokyo exchange substantially lower overall exchange market January 15, 20169Chapter 11 - Equity Financing

International equity  directed shares targeting financing from target foreign market private placements  euro-equity issues equity sold in countries different than their origin  tranches - large stock blocks sold to underwriters underwritten and distributed in multiple capital markets January 15, Chapter 11 - Equity Financing

Directed public share issues  Float a new issue in a foreign country May be needed to finance  An acquisition of existing production facilities  New production facilities Complete foreign underwritten and floated January 15, 2016Chapter 11 - Equity Financing11

Strategic alliances  take advantage economies of scale and scope  marketing joint marketing and sales Air Canada, United Airlines  financing seeking to lower WACC  development Airbus January 15, Chapter 11 - Equity Financing

Privatizations  selling government owned enterprises Western Europe Eastern Europe  political will employment programs profitability  market forces versus political forces January 15, Chapter 11 - Equity Financing