Equities Essay

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The term  equity means  different  things  in different contexts. In the business world, equity usually refers to stocks or other securities that represent ownership rights (to a company or some other business entity). A person possessing any amount  of equity in a company owns the corresponding portion  of that  company. If a legal person (a person or a business entity) owns more than 50 percent of the outstanding shares of a company, then the person possesses a controlling share of that company. A company owning a controlling share  of another  company  is called the  parent company while the latter is called the subsidiary company. Equity can also mean  the  difference between the value of an asset (for example, a house) and the debt (mortgage) amount the owner still owes.

In the context of margin trading, equity is the value of the margin account less the amount borrowed from the brokerage firm. Margin trading is trading of securities using a margin account  with a brokerage firm. Margin trading allows the investor to invest in securities with borrowed money from the brokerage house and thereby leverage their investment  (magnify both the gains and losses from the investment).

In the context  of global business, however, equity primarily refers to the stocks or other securities representing  ownership  rights to companies  across the nations. The trading of global equity has created global capital flow across countries, and has created a single world financial market that truly spans all the economies. The economic impact of a single global financial market has been enormous.  The growing businesses of the  world now can raise capital faster than  ever and the investors have the widest range of investment pool available to them.  But it has also given rise to problems like capital flight, which has devastated different economies from time to time.

In a globalized world, a person can own equities in multiple  foreign business  entities.  Foreign stocks are traded  in all the major stock exchanges in the world. Global equity trading increased sharply beginning in the 1980s. Equity trading across borders has allowed companies to be cross-listed and dual-listed, has enabled the formation  of parent  subsidiary relationships  between foreign companies, and has given rise to unique business structures like that of Renault-Nissan Alliance.

Cross-Listing Or Co-Listing Companies

Shares of many large companies  are traded  in multiple stock exchanges, so that  investors  from different countries can have easy access to their securities. For example, Fortis, a banking, insurance, and investment  management  company  that  has a presence  in Europe and North  America, is listed on three  stock exchanges: Euronext Brussels (Ticker symbol FORB), Euronext Amsterdam (FORA), and Luxembourg stock exchanges (FOR). Getting listed on a stock exchange in a country other than the country of incorporation has certain  business  advantages.  Many large Canadian companies are listed both on the Toronto  Stock Exchange and the New York Stock Exchange (NYSE). Getting  listed on the NYSE has helped these Canadian companies  to expand in the large U.S. market. The disadvantage  of cross-listing  is, of course,  the extra work necessary to adhere to the regulations (financial reporting) of different countries.

It is important to note at this point, however, that a foreign company’s security can be traded  between investors  through  other  channels.  For  example,  in the United States, investors can buy and sell foreign companies’ stocks in over-the-counter trading  (process of directly trading  equities as opposed  to trading through  a stock exchange). Many banks like JP Morgan  Chase issue instruments like ADR (American Depositary Receipt) and GDR (Global Depositary Receipt) that enable investors to buy foreign securities while bypassing the hassle of international transactions. Buying ADR, GDR, or similar other  instruments essentially means buying the ownership rights to the  underlying  (foreign) securities; investors  can buy them and receive their dividends in U.S. dollars.

Dual-Listed Companies

While cross-listed companies are those that are listed on more than one stock exchange, a dual-listed company (DLC) is a special corporate  structure  consisting of two listed companies, with separate bodies of shareholders  sharing the ownership of the corporate entity. DLC works like a merger (a process of forming a new company by merging two existing companies) in some ways, but both the original companies  continue to exist. The companies in a DLC have separate bodies of shareholders, but they share all the risks and rewards  of the entire  corporate  structure  in a fixed proportion. Dual-listing allows companies  from different  countries  to collectively do business without having to undergo any merger or acquisition process. In this way, dual-listing facilitates integration of business  operations  of two  companies  where  business environmental forces  (national  pride,  commitment to corporate  identity, etc.) do not support mergers or acquisitions between the two companies.

Unilever, the giant multinational corporation that owns many of the world’s consumer  product  brands, is a dual-listed company. Unilever consists of Unilever NV in Rotterdam (Netherlands)  and Unilever PLC in London (United Kingdom). Both Unilever companies have the same directors  and effectively operate  as a single business. Similarly, Thomson  Reuters, a leading media company of the world, is also a dual-listed company  consisting  of Thomson  Reuters  Corporation,  a  Canadian  company,  and  Thomson  Reuters PLC, a United Kingdom company.

Cross-Border Corporate  Alliances

Global equity flows have allowed parent-subsidiary relationships  between foreign companies, facilitating vertical integration  of business operations  across the border. For example, the U.S. soft drink giant Coca Cola has assumed control  over various Chinese bottlers and distillers over the course of its several-decade business presence in China. Besides conventional parent-subsidiary relationships, global equity trading has enabled unique corporate  alliance structures  like Renault-Nissan Alliance Group.

Renault-Nissan  Alliance is a group  of two global carmakers  (Renault  and  Nissan)  that  are linked  by cross-shareholding.  Renault  S.A.,  a  French   company, owns 44.4 percent shares of Nissan, a Japanese company, which in turn  owns a 15 percent  share of Renault.   Both   the   companies,   especially  Nissan, which was in deep financial crisis before the formation of the alliance, have benefited from the alliance. In some aspects the Renault-Nissan  Alliance works much  like a merger  since it has allowed integration in operations and management  of the two companies (Carlos Ghosn  is the CEO of both  the companies). But the alliance does not face the legal and corporate challenges associated with a merger.

Capital flight has been a problem in various countries’  capital  markets.  Aggressive foreign  investors often  initially flood a given country’s  capital  market with fresh investment  capital for the time being. However, when  in the  presence  of some  triggering phenomena (e.g., political turmoil, economic worries, etc.), these investors often pull back their investment in droves and the capital market of that specific country faces cataclysmic crisis. This is commonly referred to as capital flight. It is hoped that better international regulations will alleviate such problems.


  1. Jaideep Bedi, Anthony  Richards,  and Paul  Tennant,  “The Characteristics  and  Trading  Behavior  of Dual-listed  Companies,”  Reserve Bank of Australia Research Discussion  Paper  No. 2003-06 (2003);
  2. John Braithwaite and Peter Drahos, Global Business Regulation (Cambridge University Press, 2000);
  3. Bahattin Buyuksahin, Michael S. Haigh, and Michel A. Robe, Commodities and Equities: A “Market of One”? (Commodity  Futures  Trading Commission, 2008);
  4. Kristin Forbes, Why Do Foreigners Invest in the United States? (National Bureau of Economic Research, 2008);
  5. Michael R. King and Dan Segal, “International Cross-listing and the Bonding Hypothesis,” Bank of Canada Working Paper No. 2004-17 (2004);
  6. Mark Mobius, Equities: An  Introduction  to  the  Core Concepts  (Wiley, 2007);
  7. Matthew   Tagliani,  The  Practical  Guide  to  Wall Street: Equities and Derivatives (Wiley, 2009).

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