Question

List the ways a MNC can access Equity ?

Answer 1

A company can raise equity capital by selling additional shares. These could be either preferred shares or common shares.Preferred shares are unique in that payment of a specified dividend is guaranteed before any such payments are made on common shares. In exchange, preferred shareholders have limited ownership rights.

Equity funding for MNC

1. An MNC's capital structure is often influenced by characteristics of countries where it conducts its business.While most MNCs obtain equity funding in their home country, some of them pursue a global equity offering in which they can simultaneously access equity from multiple countries. Their efforts in placing the stock are focused on a few countries where they have large subsidiaries that need financing.

• In a country with many investment opportunities, potential returns may be relatively high, resulting in a high opportunity cost of funds and, therefore, a high cost of equity. Firms would be able to sell their stock at relatively higher price and obtain equity funding at lower cost and small equity premium.
• In a country where government is stable and there is no threat to business expansion, stocks could be solved off easily. Here also, firms would be able to sell their stock at relatively higher price and obtain equity funding at lower cost and small equity premium.
• In addition, an MNC would only consider raising funds from a stock offering in a foreign country if the country’s prevailing stock market valuations are relatively high. If the valuations are low, a stock offering would not attract much interest and would not generate a sufficient amount of funds to the MNC.

2. MNCs with assets that do not serve as adequate collateral may need to use a higher proportion of equity financing.

3. Highly profitable MNCs may be able to finance most of their investment with retained earnings and therefore use an equity-intensive capital structure.