Week 2 Flashcards
(39 cards)
What is Foreign Investment (FI)?
Ownership by “one person” of (whether it be an individual, a partnership, business organization, or government entity) of 10 percent or more of the controlling interest in an enterprise abroad
FDI - Foreign Direct Investment
Direct investment = factory, subsidiary (physical assets)
Entry & exit = difficult/costly
Long term investment
Direct impact on employment, wages
Funds, resources, technology, knowledge
Mainly through MNEs
(Wholly owned subsidiary, Joint venture, Acquisition & Mergers)
FPI - Foreign Portfolio Investment
Acquiring shares/stock or equity (financial assets)
Entry = easy
Short term investment
Funds only
No direct impact on employment, wages
Investment companies/persons
(Stocks,Bonds)
Foreign Investments (FI) Law and Codes:
Foreign Investment is regulated by Foreign Investment Law & Codes.
Bilateral Investment Treaties (BIT)
Foreign Investment Laws & Codes can be used both to promote as well as to restrict investments through screening and regulating foreign investment application.
- Level of regulation differs per country from open (minimal regulations to closed (strong regulation & supervision)
- Developing economies and economies that are transitioning from closed to open economies tend to have more regulations
National Foreign Investment Policies (Regulations)
The law: The national regulations that govern (regeert) Foreign Investment (FI)
The purposes:
promoting local productivity and technological development,
encouraging local participation, and
minimizing foreign competition in economic areas already well served by local businesses.
Screening Foreign Investment Applications
Requirements (national regulations);
Most (but not all) countries require foreign investors to
register with the government and,
obtain governmental approval of their proposed venture.
FI Limitations/Restrictions
Types of business forms
- Stock exchange
- limited liability corporation
% of (foreign) equity or shares in local businesses
- Limited ownership in local business
Economic sectors (Sectoral [Sectorial] Limitation)
- Exclusive for domestic investments,
- limited %,
- full or majority foreign ownership
Geographical Limitations: Free zones
- Goods imported & exported free from customs tariffs
Business forms
International investors seeking to set up a foreign operation may be limited in the kinds of business forms they are allowed to use.
Most states generally prefer that foreigners limit themselves to businesses that
- have local participation and
- fully disclose their activities to the public.
Limitations on Foreign Equity
Foreign investment laws frequently forbid or limit the percentage of equity that foreigners may own in local businesses.
Exceptions made for the purpose of attracting capital to selected industries and sectors.
FPI - Securities regulations
Security
A share, participation, or other interest in an enterprise or other property, or a debt obligation
FPI - Securities regulations
Stock
share in the ownership of a company
FPI - Securities regulations
Bond
a loan made by an investor to a borrower (typically corporate or governmental)
FPI - Securities regulations
National governments regulate securities transactions:
the form that securities take,
Protection of buyers and sellers,
Clearance & settlement procedures (sale of securities),
Insider trading
Takeovers
Securities
Certificated security
a negotiable instrument (securities exchanges: stock market)
Securities
Uncertificated security
Ownership - recorded only by the issuer.
- Form: tangible form not required (usually).
Securities
Registered security
registered in the books of the issuer (the issuer MUST maintain the register);
Transfer: endorsement directly on the certificate + delivery of the certificate.
Securities
Bearer security
made out to ‘bearer’ (not registered in the books of the issuer) ;
Transfer: delivery of the certificate
- Not widely used anymore
Takeover Regulations
Merger
- fusion 2 companies = 1
- Fusion – willingly
- Merging companies wish to join together - equal terms
Takeover Regulations
Takeover
- acquisition of one company by another company
- initiative of acquirer +without the full agreement / wish of the acquired company
- Some states impose security regulations against (hostile) takeovers
Hostile Takeover
acquisition (a deal) of one company by another
Key characteristic = management of target company does not want the deal to go through.
Hostile Takeover
tender offer
an offer to purchase some or all of shareholders’ shares in a corporation,
- Going/influence/convincing directly the company’s shareholders
Hostile Takeover proxy fight (battle):
unfriendly contest when a group of shareholders are persuaded to join forces and gather enough shareholder proxies to win a corporate vote.
- fighting to replace management to get the acquisition approved
Takeover Regulations
Corporate Raiders = individuals or companies who
- buy heavily stock (shares) of a target company
- To take control of the targeted company or
- To force the company to take actions to increase the price of shares.
Barriers to (hostile) takeovers:
- restrictions on share transferability,
- cross-ownership of shares
- restrictions on voting rights of publicly held shares
Takeover Regulations: ‘Insider Trading’
Someone (within a company) takes advantage of material non-public information about a corporation or the securities market to buy or sell securities for his personal benefit
- Material non-public information = Not for public:
sensitive information that concerning issues that may affect STOCK PRICE - E.g. information that can effect stock price: investments, taking over other company, closing departments/subordinate structures > dismissals
- ## Legal to posses such information – illegal to sell: Unfair practice; corruption…US: information which a reasonable investor would consider significant UK: information which would affect the price of securities
