Pros and Cons of listing in Foreign Stock Exchange

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Question 1

The emerging market multinationals (EMMs) are those companies originating from an emerging market which invests in developed or other emerging markets. In the literature they are also called emerging market multinational companies (EMNCs). Examples of EMMs include TATA (India), Huawei (China), Turkcell (Turkey) and Vale (Brazil). Recently they have been very active in foreign equity listing. New York and London are the dominant financial centres while Hong Kong serves Chinese companies. In a recent move the Singapore Exchange has also opened its doors to Chinese companies. In this context, you are required to discuss the advantages and disadvantages of listings by EMMs. You may provide one EMM as an example to illustrate your case in an effective manner. However, you need to take into consideration that this an academic essay so theoretical and empirical discussions are indispensable. Your assignment must be properly referenced. Further information on referencing (ie the Harvard system) is available in the Studying at a Distance textbook by Talbot and on the Virtual Learning Environment in the Study Skills area.

Analyse the pros and cons of listing in the foreign stock exchange(s) for emerging-market multinationals (EMMs).

Finance Assignment Solution for Pros an Cons of listing in Foreign Stock Exchange

In this assignment, the main purpose is to explain the motives and factors for which EMMs move on to listing in foreign stock exchange (s) with special emphasis upon the pros and cons of listing in the foreign stock exchange. We found that when an EMMs go for listing in the foreign stock exchange, the market segmentation hypothesis, information impact works for the betterment of the company’s stock performance and value but, there are some negative consequences like the underdevelopment of local market, wrong perception of local investors of the company etc also documented in the literature. To explain the listing of EMMs and their impact on stock markets is clarified after taking an example of Tata steel Ltd. listing on London stock exchange. The analysis suggests that stock prices are positively affected due to the foreign listings and justifies the reasons as outlined in the literature. There are some studies which suggest for the negative stock price reaction for listing.

Emerging market multinationals (EMMs): Definition, features, and example

In the past two decades, there is a surge in the number of companies moving outside the boundary is known as Emerging market multinationals (EMMs). These companies have moved outside the country to take the advantages of opportunities in the business either locally or globally, or to respond to increasing competition from new entrants. A market is said to be an emerging if it has low average living standards, low market capitalization relative to GDP, economic growth in recent years (Rasmussen 2012) and institutional voids (Khanna and Palepu, 1997).

EMMs differs each other in terms of strategic, managerial and organizational orientations(Aybar & Thirunavukkaras 2005). Further, Bartlett and Ghoshal (2000) found that EMMs develops internal markets for resources, and technology to overcome the environmental risk factors and through foreign conglomerations, they build capabilities to earn profits in the industry. EMMs invest in other emerging countries when their labor costs are not providing any price advantage in the home country and they have capabilities to perform better in other countries (Aybar & Thirunavukkaras 2005).

Aybar & Thirunavukkaras (2005) has argued that the access to international capital market improves disclosure, removes information asymmetry and enhances the bargaining power of EMMs with creditors. Though, the literature supports the view that foreign listing is done by the firms where poor law and investor protection is present but, the rationale for not much listing by the firms from developed country is also available (Fernandes and Giannetti 2014). A Recent study also describes that foreign listing has a narrow scope in short run while wider scope in long run and high propensity to be involved in mergers and acquisitions during listing period (Peng and Su 2014).

Example of foreign listing: Tata steels Ltd (Tata Group)

In EMMs India, Tata group companies such as Tata steels is listed in two foreign stock exchanges London stock exchange and Luxembourg stock exchange by issuing GDS[1]. Tata group is one of the oldest business group having more than 250 group companies and known as group affiliates. Tata steels Ltd. is one of the most reputed group affiliates of Tata group. This company has emerged as EMM from India which has its plants in the UK and has adopted expansion via mergers and acquisition.

 

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