International equity markets and global investment dynamics

International Equity Markets

Advantages and disadvantages of cross listing on stock exchanges

When a company lists its stock exchange on many stock exchanges in different countries, it is referred to as cross listing. It entails exchanging in more than one country. However, a company can list its stocks on two stock exchanges in the same country. The administration is likely to be widened besides the generation of great pool of possible investors. In most cases, companies employ the common form of cross listing whereby they launch a primary listing in the country of origin before initiating a secondary listing in a foreign country. This happens when a business is pursuing to go global. For instance, an Australian firm expanding in the U.S. And seeks to reflect this in the best way (Dobbs & Goedhart, 2010).

The major reason of cross listing is to avail stock to many people across the world. Evidently, a business might bank more money by issuing new stocks. In addition, it increases the stock liquidity, which gives the business owners high flexibility in terms of stake ownership. Another benefit of cross listing is that it pushes companies to abide by the listing requirements of different countries. This makes companies appear more trust worthy and reliable to potential investors. Particularly, this is a great advantage to businesses based in environments where the government requires minimal information in public flotation. Therefore, companies are motivated to adhere to the toughest requirements of for instance; the U.S. can enhance its global credibility (Youxing, 2009).

Cross listing has a number of minor benefits. First, a company might benefit from double the chances of attracting media coverage. Another advantage is that cross listing provides the ease of acquiring a foreign firm in deals where payment is done in the form of stock exchange rather than cash. The cross listing of a company can choose the alternative of issuing stock manifested as bonuses to employees who work in relevant countries (Rubery, 2007).

Cross listing has a few inherent drawbacks. Most of then revolve around the need to penetrate the process of flotation twice while meeting two different sets of continuing procedures and requirements. For a company, this gene rates surplus costs in terms of international administration and direct spending (Perry, 2010). For a company, which is not financially stable or properly established, the process of listing in the second business might generate a surplus scrutiny level causing problems. Most companies intending to enter the market have raised concerns such as the ongoing process and the actual costs involved in listing. The costs of listing come from professional fees and sponsor, marketing, and advertising expenses accompanied by other offers for sale, initial fees required by the Listing Authority, and annual duties paid to the Exchange (Bragg, 2009).

Issues involved in raising capital in the global market

With the ongoing uncertainty across the global economy, it has become challenging to raise capital for most corporations because liquidity has been suppressed. In order to identify the financial instruments and geographical conducive to raise capital, it is imperative to gauge the dynamics of the financial industry.

Liquidity concerns: the global liquidity has been fluctuating abruptly thus having a major impact on the economic growth and financial stability. While the sovereign debt crisis spread across major countries of the world, there is a high possibility of a looming second credit crisis. The resulting sovereign downgrading and unsustainable debt levels by rating organizations cause a spike in the interest rates of the sovereign. This leads to an increase in the overall expenses of corporate funding. In this environment, banks risk aversion hence tight liquidity conditions (Rubery, 2007).

Funding is increasingly becoming important across the global fund raising industry. Therefore, raising funds has proven to be stable courtesy of domestic investors. Different regions have been increasing their share within the global market. Because global investors are expected to maintain or increase their allocations to interested companies, raising funds in the market is likely to continue growing.

From 2010, there has been a dramatic rise in the velocity of deals among global firms. There is still a low deal flow compared to previous years. However, the market has experienced a continued recovery after the height of the global financial crisis. This pace is projected to continue increasing as businesses have dry powder. A notable proportion of this un-invested capital requires to be directed towards short-term investment. Another factor affecting fund raising is the increasing scrutiny by the Exchange and Security Commission on the way businesses raises funds and value of investment. Previously, the market was never policed as banks or hedge funds and businesses were never hit by major scandals. The regulators have heightened their scrutiny revealing gross irregularities within companies. Other regulatory reforms and tax policies have an adverse impact on the market and the chances of getting funds. Continuing debates over this issue have seen scrutiny efforts increase in the industry (Dobbs & Goedhart, 2010).

New financial rules have prohibited banking institutions from investing in funding, sponsoring, or having relationships with private equity fund. This is subject to no exception. Non-bank financial entities under the authority of Federal Reserve engaging in such operations might be subject to quantitative limits, extra capital requirement among other restrictions. However, companies are not precluded from seeking funds from financial entities. This rule has severely affected the fundraising conditions for most companies (Youxing, 2009). While the global companies are declining, analysts expect the gap to widen further. Primarily, this suggests an absence of investor confidence across global companies. This has facilitated the move to put global firms on a negative watch. This negative outlook is likely to influence inter-firm lending. Eventually, this would lead to an increase in funding costs for borrowers.