Basic Concept
Many major firms throughout the world have begun to internationalize their capital structure by raising funds from foreign as well as domestic source. As a result, these corporations are becoming multinational not only in the scope of their business activities but also in their capital structure. This trend reflects not only a conscious effort on the part of firms to lower the cost of capital by international sourcing of funds but also the ongoing liberalization and deregulation of international financial markets that make them accessible for many firms.
Contents
Prospect
If international financial markets were completely integrated, it would not matter whether firms raised capital from domestic or foreign sources because the cost of capital would be similar across countries. If, on the other hand, these markets are less than fully integrated, firms may be able to create value for their shareholders by issuing securities in foreign as well as domestic markets.
Influence Factors
As discussed in different theories, cross-listing of a firm's shares on foreign stock exchanges is one way a firm operating in segmented capital market can lessen the negative effects of segmentation and also internationalize the firm's capital structure.
Examples
For example, IBM, Honda Motor, and British Petroleum are simultaneously listed and traded on the New York, London, and Tokyo stock exchanges. By internationalizing its corporate ownership structure, a firm can generally increase its share price and lower its cost of capital.