Currently there are several options open to a company when wanting to raise finance or even invest its earnings into another. One of the most popular is selling its shares on a stock exchange. This is a secure method; legally you don’t have to repay the investment, and although it is encouraged to pay dividends it is again not a legal obligation. There is the opportunity to gain information about the market you are in but also other markets you may want to venture in to, through the use of stock brokers.
But the question that arises is, if those benefits still exist to the same extent when two of the biggest stock exchanges merge? Having high exposure in the news this week is the merger between the New York Stock Exchange and the Deutsche Boerse. Although it will give the company’s listed on these exchanges a greater scope of investment both outgoing and incoming, it does not however have the same benefit for the smaller-mid size companies since, as found by Yahoo Finance that the larger companies tend to stick to those they are familiar with.
The control of the merge does however stay with the Deutsche Boerse since they will own 60%, leaving the New York Exchange with the remaining 40%. The Wall Street Journal does question the impact that this merge will have on the so called ‘leadership role’ the New York Exchange holds within the world finance, and therefore puts forward the recommendation that the merger holds the New York Exchange name first, and the German second. Is this not just all about reputation and who thinks who is better? As the BBC News suggest that it is essentially the Deutsche Boerse leading the merge and so therefore not a merge of equals, so by right the name should have German first?
The merger does mean that each has to operate in such a way that sticks to the regulations of both countries, and potentially making dealings more complicated. But what will make companies continue to operate on the exchanges and continue investment in the exchanges? Such advantages include; lower trading costs, greater access to investments and share values rising as thought by Yahoo Finance.
However, with the ‘experts’ suggesting that this merge will be a long process and a bit of a slog, I guess it will just take time to see if such benefits do exist and if the merger of the two is truly an opportunity or a threat?!
Why exactly is this a threat for a small or medium-size companies?
ReplyDeleteThere is a threat to small or medium sized companies, mainly if they are listed on a foreign stock exchange. The merge is supposed to open up more finance, but some believe foreign investors are more likely to invest in companies that are well known, especially if they are investors unfamiliar and foreign to the stock exchange they wish to invest in. Meaning less finance for small and medium companies, as a lot of finance has been taken by the larger corporations.
ReplyDeleteobviously you can't say this is always the case, you'd hope if you were a big investor you'd think about your investment choice a little more than just whether its a household name...hopefully.
I understand that surely large investors will weigh up their options and not jsut base decisions on what they know, but its human nature to stick to what you know isn't it?
ReplyDeleteSo if this is the case those small-mid sized who are not well known expecially in a foreign country will be less attractive to investors if they don't know much about them. But then, should they be listed on a big stock exchange if they don't have a long enough background anyway?