Question

ABC Co. is a large U.S.-based MNC with large subsidiaries in Germany. It has issued stock in Germany in order to establish its business. It could have issued stock in the U.S. and then used the proceeds in order to support the growth in Europe. What is a possible advantage of issuing the stock in Germany to finance German operations? Also, why might the German investors prefer to purchase the stock that was issued in Germany rather than purchase the stock of ABC on a U.S. stock exchange?

Answer 1

By issuing stock in Germany, ABC Co can use the proceeds from the stock issuance to support its business in Germany. By listing its stock in Germany, it basically creates a secondary source of cash. This makes it easier to engage in secondary stock offering in Germany in the future.

German investors might prefer to stock issued in Germany rather than purchase the stock of ABC Co on the US stock exchange since they can avoid the risks of foreign exchange risk, currency risk, liquidity and the risk from foreign government.

I hope that was helpful :)