Playing Away From Home - Global Equity Capital Markets for Emerging Growth Firms

The expansion of global financial markets has led to a rise in foreign IPOs and listings. When equity can be sourced anywhere in the world, how do managers decide whether to list on the domestic market, Nasdaq, or both? Professors Christoph Zott and Raphael summarize the key benefits that prompt companies to list on foreign exchanges and weighs these against the various costs involved in an attempt to help entrepreneurs and managers develop successful strategies for globalizing equity markets.

by Christoph Zott
Last Updated: 23 Jul 2013

There has been an increase in non-domestic IPOs on both Nasdaq in the United States and the domestic market in Germany (Neuer Markt until 2002). Since 1988 there have been 405 IPOs on the Nasdaq by non-domestic firms from 44 different countries, raising $50.35 billion of equity capital with an average of $125.5 million per issue, and accounting for 19.5% of the equity capital raised by all IPOs on Nasdaq during the period. What explains this phenomenon? And what are the implications of these trends for the globalizing entrepreneur and the leaders of corporate ventures?

The simultaneous globalization of public equity markets for entrepreneurial firms is particularly interesting because these markets are notoriously plagued by the presence of asymmetric information, the potential for which is heightened in the case of foreign firms. As a result, the question of why markets for public entrepreneurial finance globalize so rapidly is interesting both theoretically and empirically. The authors’ survey revealed that the most popular motive for such firms to list on a foreign exchange was to raise equity, followed by strategic considerations to increase publicity and visibility, and the desire to have access to international investors in order to increase the geographic dispersion of ownership. Surprisingly few firms mentioned as motives a higher valuation or the desire to increase exit opportunities by becoming an attractive target for acquisitions. But these benefits have to be weighed against the costs and risks of taking an IPO to these markets. The authors consider these costs, paying particular attention to whether they differ for non-domestic (as compared with domestic) entrepreneurial firms, and suggest that entrepreneurs carefully examine the trade-offs in choosing whether to list on a domestic or non-domestic capital market.

According to Professors Amit and Zott’s analysis, the factors that seem to make globalizing entrepreneurs prefer a foreign listing to a domestic one are often strategic and organizational in nature and the emerging trend of globalizing public capital markets has implications for private equity markets. The emergence of global private and public capital markets for entrepreneurial firms is likely to accelerate the pace of commercializing innovations, and contribute to job creation and economic development. This trend, in turn, heightens investor expectations that once the public market for young emerging growth firms opens, non-domestic firms are likely to gain access here as well. There are no simple answers to complex questions in this area but in identifying the relative costs and benefits of sticking close to home or of taking the offering abroad, Amit and Zott enable entrepreneurs and managers to more fully analyze and weigh these important decisions.

INSEAD 2003

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