International Corporate Finance Chp 12:The global cost and availability of capital Xin Chen Visiting Associate Professor Aarhus School of Business
1 International Corporate Finance Chp 12: The global cost and availability of capital Xin Chen Visiting Associate Professor Aarhus School of Business
Global Cost and Availability of Capital Global integration of capital markets has given many firms access to new and cheaper sources of funds beyond those available in their home markets. If a firm is located in a country with illiquid, small,and/or segmented capital markets,it can achieve this lower global cost and greater availability of capital by a properly designed and implemented strategy
Global Cost and Availability of Capital Global integration of capital markets has given many firms access to new and cheaper sources of funds beyond those available in their home markets. If a firm is located in a country with illiquid, small, and/or segmented capital markets, it can achieve this lower global cost and greater availability of capital by a properly designed and implemented strategy
Exhibit 12.1.Dimensions of the Cost and Availability of Capital Strategy Local Market Access Global Market Access Firm-Specific Characteristics Firm's securities appeal Firm's securities appeal to only to domestic investors international portfolio investors Market Liquidity for Firm's Securities Illiquid domestic securities market Highly liquid domestic market and and limited international liquidity broad international participation Effect of Market Segmentation on Firm's Securities and Cost of Capital Segmented domestic securities Access to global securities market market that prices shares that prices shares according to according to domestic standards international standards
Exhibit 12.1 Dimensions of the Cost and Availability of Capital Strategy
Global Cost and Availability of Capital A firm that must source its long-term debt and equity in a highly illiquid domestic securities market will probably have a relatively high cost of capital and will face limited availability of such capital which will,in turn,damage the overall competitiveness of the firm. Firms resident in industrial countries with small capital markets may enjoy an improved availability of funds at a lower cost,but would also benefit from access to highly liquid global markets
Global Cost and Availability of Capital A firm that must source its long-term debt and equity in a highly illiquid domestic securities market will probably have a relatively high cost of capital and will face limited availability of such capital which will, in turn, damage the overall competitiveness of the firm. Firms resident in industrial countries with small capital markets may enjoy an improved availability of funds at a lower cost, but would also benefit from access to highly liquid global markets
Global Cost and Availability of Capital Firms resident in countries with segmented capital markets must devise a strategy to escape dependence on that market for their long-term debt and equity needs. A national capital market is segmented if the required rate of return on securities in that market differs from the required rate of return on securities of comparable expected return and risk traded on other securities markets
Global Cost and Availability of Capital Firms resident in countries with segmented capital markets must devise a strategy to escape dependence on that market for their long-term debt and equity needs. A national capital market is segmented if the required rate of return on securities in that market differs from the required rate of return on securities of comparable expected return and risk traded on other securities markets