There are two main types of appeal for companies entering a foreign stock markets, namely for the companies to 1) raise capital and 2) for commercial reasons (http://www.nasdaq.com/about/chap4.pdf, 2001-10-15). Nevertheless, there exist a number of other reasons that might influence companies when entering a foreign market. The most essential motives are stated below, with no internal order:
• Capital Motives
Companies get access to more capital than when only listed in its domestic market. For instance, a listing on the US Market provides non-US companies with access to one of the largest pools of capital in the world. The new market gives access to expansion and risk capital (ibid) and makes it easier for the company when making new issues for stocks to strengthen the equity base of the company’s investments, for company acquisitions or other kinds of expansions (Stockholms Fondbörs, 1990).
Furthermore, many exchanges offer a continuous market; thereby making the security of the listed company more attractive to public investors and for the companies the listing may create lower financing costs when additional capital is raised in the future (Teweles & Bradley, 1987).
• Valuation Motives
Companies entering a new stock market benefit if taking their product to a market where the investors understand their story. In respect of a specific industry, investors in other countries might be more acquainted with, and therefore value, a company or its products higher than those in the company’s country of origin, resulting in a more beneficial valuation of the company’s stock (http://www.nasdaq.com/about/chap4.pdf, 2001-10-24). Through the listing on a secondary market, on which many other companies in the same industry list their shares, the company can expect best price of its shares (Teweles & Bradley, 1987) and consequently always have a current value based on an effective interaction of demand and supply of the stock (Sydsvenska Dagbladet, 1988).
• Diversify Shareholder Base
Listing in the secondary country gives Swedish companies a possibility to broaden its shareholder base through foreign countries. It offers a complement to an already existing listing in the company’s country of origin (http://www.nasdaq.com/about/chap4.pdf, 2001-10-24). Many times the company sees the listing as a possibility to attract more stockholders, since more stockholders seem to create more customers, improve investor relations, aid future financing, diversify company ownership and advertise the organisation (Teweles & Bradley, 1987)
• Increase Visibility and Reputation
A company obtains a certain amount of publicity and advertising from having their securities listed in a foreign market and consumers associate the company’s product with the stock, which increases the visibility of the company (ibid). In most cases, when a foreign company gets listed on a new market as secondary market the company’s profile raises, in both the foreign country and the country of origin. For instance, a listing on the US stock market may be considered a sign of company success and a quality brand.
Finally, foreign listing complements a company’s market communications message and gives the company an increased analysts’ coverage
(http://www.nasdaq.com/about/chap4.pdf, 2001-10-24). A company listed in a stock market is being monitored on continuous basis of analysts within media, banks and stockbroker firms in the country, which is valid also for Swedish companies entering a secondary market. Through this the company generates a higher degree of visibility, resulting in that the company’s products and business are better known in the secondary country. The company reaches a new market, a fact that gives many business advantages. In addition, the listing increases the company status with business connections (Gometz et al, 1997).
• Enable Employees not Employed in the Country of Origin to Invest in the Parent Company
A foreign listing may help a company’s incentive program for its foreign employees. The reason for that is that it provides a liquid market in the foreign country for the company’s stocks (http://www.nasdaq.com/about/chap4.pdf, 2001-10-22), a process that makes it easier for the employees to become part owner in the company (Gometz et al, 1997).
• Making the Stock Liquid in another Country
The aim is to make it easier for the general public to buy and to sell stocks when listed in the investors’ home market place (Stockholms Fondbörs, 1990).
• Easier to get Qualified Employees
The listing can place the company in a beneficial position when recruiting qualified personnel, due to reputation, but also of psychological reasons since the company is in a public focus. Many consider the challenge and the stimulation of working in a public company a positive influence in their careers (Gometz et al, 1997). Making the share liquid helps the company in the process of attracting qualified personnel, both at home and abroad.
• Possibility to Use Foreign Stocks in Acquisitions
Using a company’s stocks listed in a country other than the country of origin provides an alternative, cash-free financing option for acquisitions. An offer of the foreign stocks benefits the company when engender loyalty in the newly
(http://www.nasdaq.com/about/chap4.pdf, 2001-10-24). The stocks are simply used as acquisition payment (Stockholms Fondbörs, 1990).
• Owner Related Motives
When a company’s ownership structure is changed, the company can go into an era of changes. If the company is bought by another company there may be no other more important reasons for the abroad listing than that the parent company wants the subsidiary to be listed in the US market, since the parent company has a listing there.
• Internationalisation Phase in the Company
Since our thesis focuses on abroad listing, the internationalisation motive must be considered, partly due to what Axelsson & Gullmarstrand (2000) found in their review of the Swedish stock market. They observed that internationalisation was a common motive in the new economy; thereby we have decided to include it as a motive in our thesis. The internationalisation motive signifies that the company seeks to act on an international basis.