International Equity Markets - Essay Example

International Equity Market Cross listing is the listing of a company equity shares in one or many foreign stock exchanges besides the domestic stock exchange. Companies have pursued this as a strategy of entering foreign markets. Cross listing is one of the key means with which capital markets interact at across the globe. Businesses that list their shares in foreign stock exchanges are propelled by several factors. First, cross listing enables firms to reduce their cost of capital.

The fact that foreign investors will have the opportunity to invest in the cross-listed companies lowers the cost of capital and hence increasing the return of the firm. Investment barriers are removed making global investors have access to the firm’s stock. Secondly, cross listing increases the liquidity of a company’s stock (Killick,2008). Cross-listed stocks are traded in more than one stock exchange and this makes them have a high demand. Consequently, the cost of the capital will fall.

Moreover, cross listing increases the level of information disclosures. A firm that desires to have their stocks listed in a foreign market is required to give fundamental and sufficient information to the global investors. Media attention and investors interests are also boosted through cross listing. Albeit, cross listing encourages corporate governance issues hence improving the manner in which a company is governed (Killick, 2008). This will reduce chances of corporate failures.

Finally, firms may be motivated to cross list their shares to reduce the long procedures and red tape in accessing foreign capital. Firms that cross list their shares have a wide access to funding from foreign investors. Cross listing therefore increase, the volumes of stock traded (Yona, 2011). In contrast, there are also costs that firms meet in cross listing their equity shares. Cross listing will mean that firms have to adhere to the global and general conventions. Financial disclosures and reporting must be done with regard to the international standards (Beenhakker, 2001).

Further, cross listing will swell pressure on the firm’s executives as investors, analysts and the general media will closely monitor the performance of the firm. In addition, cross listing fee is required for firms to have their equity traded in the foreign stock exchanges. Firms that cross list their equity shares are also suppose to give quarterly information to the investors (Beenhakker, 2001). These stringent measures together with the increased disclosure requirement increase costs to the company.

Use of international auditing firms is as well costly to the company (Yona, 2011). In raising capital in the global market, there are various issues to be considered. First, the fluctuation in exchange rate is a recipe in raising additional capital. Firms have to consider the risk in fluctuations in the exchange rates (Gordon, 1995). It is therefore important that firms that need to cross list their shares in countries with relatively stable exchange rates. Political stability and possible changes in investment legislation is also a factor to integrate in making the decision.

Firms should avoid at all cost listing in countries that are volatile and whose legislation negates investment decisions. Moreover, the taxation rates and barriers in foreign stock exchanges should also form part of the investment determinants (Gordon, 1995). In conclusion, firms that aim to cross list their equity shares in foreign stock exchange must weigh the benefits and the cost of cross listing if meaningful growth is to be attained. Investment analysts and media information should also be monitored.

Cross listing of equity shares in foreign stock exchanges assists in internationalizing of firms operations. Reference List Beenhakker, H. L. (2001). The Global Economy and International Financing. Westport, Conn.: Quorum Books. Gordon, S. L. (1995). The United States and Global Capital Shortages: the problem and possible solutions. Westport, Conn.: Quorum Books. Killick, A. (2008). Advantages and Disadvantages of Listing on the Alternative Investment Market. Retrieved November, 2010, from http://www.tcii.co.

uk/images/upload/guest_article_pdfs/gaandrewkillick_5485.pdf Yona, L. (2011). International Finance for Developing Countries. S.l.: Authorhouse.