Globalization of Capital Markets: Implications for Firm Strategies

The increasing integration of global capital markets now makes it easier for firms to access capital outside of their home countries. Firms access international capital markets through a variety of means such as initial public offerings (IPO), seasoned equity offerings (SEO), cross-listings, depository receipts, special purpose acquisition companies (SPACS), shelf offerings, private equity and other informal equity capital channels.   Firms can also access debt resources outside their market through bank loans, and foreign bond issues. Finally, cross border flows of venture capital (VC) continue to increase rapidly. The objective of this Special Issue will be to explore the challenges firms face in capital markets beyond their domestic boundaries, be it equity, debt, or VC markets.

While IB research continues to evaluate the challenges facing firms in foreign product markets, IB scholars have yet to adequately address the underlying reasons why firms face challenges in foreign equity markets. These include underpricing, higher underwriting and professional fees, higher listing fees, audit fees (Bronson, Ghosh, and Hogan, 2009), and greater risk of lawsuits (Bhattacharya, Galpin, and Haslem, 2007), and home bias on the part of investors (French and Poterba, 1991). Further, research suggests the existence of a “foreign firm discount” relative to host market firms (Frésard and Salva, 2010). 

Venture capital and private equity have truly become global phenomena and take many forms such as cross-border investment, foreign acquisitions, VC firms opening offices overseas, and influencing their portfolio firms to enter and exit international stock exchanges. Foreign firms raise significantly more debt than equity in the U.S..  Indeed, the largest component of the international capital market is the bond market. 

Research on the motivation, the processes, the supporting mechanisms, and the range of outcomes that firms experience as a result of entering international capital markets is extremely limited so far. We believe such research can draw from a variety of theoretical perspectives and research traditions in international business.  The choice of whether to access financial resources outside of the firm’s home market, how to select the appropriate foreign market, and the manner in which to raise resources are all relevant questions that parallel prior IB research market and entry mode choice.  IB scholars consider LOF as the “fundamental assumption driving theories of the multinational enterprise” (Zaheer, 1995: 341). Yet, the conceptualization and research on LOF solely based upon product market may be inadequate today given the increasing integration of capital markets (Bell, Filatotchev and Rasheed, 2012). 

In addition to the main theoretical perspectives in international business, the Special Issue welcomes scholars and perspectives from diverse disciplines such as finance, economics, and sociology.

TOPICS

The interaction between product market and capital market strategies

• Prior research shows that the decision to list abroad has implications on the success of the firm’s products. What are the implications of capital market strategies for product market strategies and vice versa? 

Culture and capital markets

• There is a growing body of research that investigates how culture affects both economic exchange and outcomes by affecting expectations and preferences (Guiso, Sapienza, and Zingales, 2009). How does culture affect cross-border transactions in formal or informal capital markets?

The role of distance

• Even in a world where technology has shrunk distance and time, spatial costs are non-trivial. Do spatial costs exist in financial markets? Moreover, do spatial costs impact capital market strategies, and the choice of foreign capital markets?

The role of innovation

• Financial markets are continuously producing new vehicles through which firms can acquire capital resources. What are the antecedents of innovations in global capital markets? How do firms take advantage of these innovations?

Institutional environments and their implications on capital market strategies

• New exchanges in Europe and Asia with vastly different listing and disclosure requirements thank New York and London. How has the competition among stock exchanges impacted the international capital raising strategies of firms?

Liabilities of Foreignness

• What are the sources of Liabilities of Foreignness (LOF) that firms face in formal or informal capital markets and what are the strategies that enable firms to overcome them?

Informal capital market strategies

• Private equity represents an innovation in the ability to provide capital to unquoted firms.  What are challenges that private equity firms face in international markets? Likewise, what are the challenges that private equity portfolio firms face?

Governance and capital market strategies

• To what extent does internationalization of capital markets lead to convergence of governance practices across countries?? 

The role of trust

• Trust has been found to affect the international investment choices of private equity firms (Bruton, Ahlstrom, and Puky, 2009). How does trust impact the international capital market strategies of firms?

Third parties and capital market strategies

• Capital markets are mediated markets in that sense that participants rely greatly on key third parties, such as investment banks, brokers, and investment analysts for information production.  How do third parties impact the choice of foreign capital markets?   What are the internationalization strategies that these third parties pursue?

Processes

• What are the top management and board factors that impact capital market strategies? Both individual and team level factors hold considerable promise providing greater insights into the reasons why firms choose capital resources outside of their home market, and the manner in which these resources are accessed.

Performance

• What accounts for success in foreign capital markets? How do strategies for firms seeking debt capital differ from those seeking equity? How do home and host country factors determine the outcome of these strategies?

• While many of the firms that make their initial public offerings go on to succeed, what is often overlooked is the fact that more than half of these firms actually delist within the first few years (Doidge, Karolyi, and Stulz, 2010). What are the factors that account for the delisting of firms on foreign exchanges?

SUBMISSION INSTRUCTIONS

The deadline for manuscript submission is May 15, 2015. Manuscripts should be prepared in accordance with Journal of International Management’s Style Guide for Authors: http://www.elsevier.com/journals/journal-of-international-management/1075-4253/guide-for-authors and submitted through the Journal’s submission website. A paper development workshop will be held at the 2015 Academy of Management conference in Vancouver. Final Drafts are due February 28, 2016.

Please direct any questions regarding the Special Issue to Igor Filatotchev (Igor.Filatotchev@city.ac.uk), Greg Bell (gbell@udallas.edu) and Abdul Rasheed (abdul@uta.edu).

REFERENCES

Bell, R. G., Filatotchev, I., Rasheed, A. 2012. The liability of foreignness in capital markets: Sources and remedies. Journal of International Business Studies, 43(2): 107-122.

Bhattacharya, U., Galpin, N., Haslem, B. 2007.  The home court advantage in international corporate litigation. Journal of Law and Economics, 50: 625-659.

Bruton, G., Ahlstrom, D., Puky, T. 2009. Institutional differences and the development of entrepreneurial ventures: A comparison of the venture capital industries in Latin America and Asia.  Journal of International Business Studies, 40: 762-778.

Doidge, C., Karolyi, A., Stulz, R., 2010. Why do foreign firms leave U.S. equity markets? Journal of Finance 65, 1507-1553.

French, K., Poterba, J. 1991. Investor diversification and international equity markets.  The American Economic Review, 81(2): 222-226

Frésard, L., Salva, C. 2010. The foreign firm discount. Working Paper, HEC School of Management, HEC Paris.

Guiso, L., Sapienza, P., Zingales, L. 2009.  Cultural biases in economic exchange?  Quarterly Journal of Economics, 124(3): 1095–1131.

Schmeisser, B. 2013. A systematic review of literature on offshoring of value chain activities. Journal of International Management, 19(4), 390-406.

Zaheer, S. 1995. Overcoming the liability of foreignness. Academy of Management Journal, 38(2): 341-363.