Equity
Chapter 12
July 17, 2016
Chapter 11 - Equity Financing
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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
July 17, 2016
Chapter 11 - Equity Financing
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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)
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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
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Relative market liquidity
 Value of trades in the year 2002
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
NYSE
NASDAQ
LSE
Euronext
Tokyo
Deutsche
Spain
Italy
Swiss
Taiwan
Korea
July 17, 2016
$10,311,156,000,000 (2,366)
$7,254,594,000,000 (3,649)
$4,001,340,000,000 (2,274)
$1,988,359,000,000 (1,114)
$1,564,244,000,000 (2,154)
$1,212,302,000,000
(934)
$653,229,000,000 (1,015)
$634,635,000,000
(295
$599,749,000,000
(398)
$633,632,000,000
(641)
$596,632,000,000
(679)
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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
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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
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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
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Other exchanges
 London exchange
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less liquid
higher transaction costs
limit orders not executed chronologically
lower regulatory costs
 more foreign firms listing
 Tokyo exchange
 substantially lower overall exchange
market
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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
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capital markets
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
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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
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Privatizations
 selling government owned enterprises
 Western Europe
 Eastern Europe
 political will
 employment programs
 profitability
 market forces versus political forces
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