- Investment in foreign securities
Shareholders may be attracted to invest in foreign securities especially in shares of
multinational companies and may be ready to pay a higher price for the same expected
inflow of dividends, for various reasons.
- Market Segmentation
A capital market is segmented if the required rate of return on the securities of that
market is different from the required rate of return on the securities having comparable
risk and return characteristics, being negotiated on other markets, account being taken of
political and exchange risks.
In operational terms, market segmentation is some kind of a market imperfection.
In a segmented market, the price of securities is quoted as a function of domestic criteria
rather than international criteria. An enterprise that has access only to a segmented
capital market is likely to have a higher cost of capital than the one having an access to
several markets. On the contrary, a multinational group may raise funds in different
markets and especially on international capital market or on foreign markets.
- Marginal Cost and Return vs. Investment Budget.
It is apparent that access to international capital market permits to obtain a lower cost of
capital and corresponds to a higher investment budget. Given these facts, the growth of
the multinational group is likely to be stronger than that of domestic enterprise,
everything else being the same.