This chapter examines equity financing in a global market.

The main points of the chapter are as

follows:

1) A multinational corporation can obtain additional funds by issuing shares to its existing
shareholders or to new shareholders. Most MNCs have shares listed on the stock market of
the country in which they are headquartered, but many list their shares on several stock
exchanges around the world, with the U.S. stock exchanges being most popular.
2) The largest stock markets are in the United States, the United Kingdom, and Japan. These
markets are also large relative to the GDP of their respective countries, unlike European
stock markets. In Europe, bank financing is a relatively more important source of funding for
companies.
3) Most stock markets are private organizations or are owned by a set of financial institutions
(banker’s bourses), although many of the most prominent ones are now publicly traded
corporations.
4) A trading system may be order driven or price driven. In a price-driven system, dealers who
act as market markers for certain stocks stand ready to buy at a bid price and sell at an ask
price. NASDAQ in the United States is such a system. In an order-driven system, share prices
are determined in an auction that brings together the supply and demand of shares. The TSE
in Tokyo is an example of an order-driven system. The NYSE has elements of both systems.
5) Stock markets around the world have become increasingly automated.
6) Stock markets have consolidated in response to competitive pressures to allow international
investors more time to trade and to automatically cross-list shares.
7) Turnover is the total volume traded on an exchange during a year divided by the exchange’s
market capitalization. It is often viewed as a liquidity indicator. The United States has the
largest turnover of all developed stock markets.
8) Turnover is negatively related to trading costs, which consist of brokerage commissions, bid–
ask spreads, and market impact (the fact that the price may move against you when you
trade a large order).
9) Emerging stock markets are the stock markets of developing countries, which developed
rapidly during the 1990s, following a process of financial liberalization. Among the largest
emerging markets today are India, South Africa, Taiwan, Korea, Russia, and Brazil.
10) Transaction costs in emerging markets are larger and turnover is generally lower than in
developed markets.
11) When foreign companies list their shares in the United States, they typically use American
depositary receipts (ADRs), which are held in custody by a depositary bank and represent a
certain number of original shares issued in the home stock market.
12) ADR programs come in three varieties: Level I (not exchange traded), Level II (exchange
traded), and Level III (exchange traded and capital raising). In addition, private placements
occur through Rule 144.
13) Global depositary receipts (GDRs) are similar to ADRs. However, they can be traded on many
exchanges in addition to U.S. exchanges.
14) Cross-listing a stock can lower a company’s cost of capital through several channels,
including improved liquidity and better corporate governance. It can heighten the awareness
 of the firm’s brands, provide direct access to foreign capital, and make future capital access
easier.
15) Global registered shares (GRSs) trade simultaneously in different markets around the world,
in different currencies, with the shares being completely fungible across markets.
16) A strategic alliance is an agreement between legally distinct companies to share the costs
and benefits of a particular investment.