Domestic versus international firms

Differences in share-ownership patterns can have a significant effect on both the firms sources of financial capital and its financial performance and riskiness. It will also affect the oversight given to the firms managers. For example, if corporations with open ownership structures require additional financing, it will most likely come from either borrowing additional funds, reinvesting retained profits, or from the sale of additional shares.

If new equity funds are used and new shares are sold, then the ownership positions of the existing shareholders will be , unless these existing shareholders purchase a proportional quantity of the additional shares. The open structure also implies that the performance of the firms managers will also be subject to scrutiny by those individuals and institutions who are existing and potential shareholders.

International firms must effectively manage several additional phenomena and complexities that are not explicitly applicable to purely domestic companies. Based on your understanding of the differences between purely domestic businesses and international companies, evaluate whether the following statement is true or false:

The sovereignty of the different countries in which a multinational firm operates (with their ability to create their own idiosyncratic laws and manage their own unique economies) requires managers to be extremely knowledgeable about these differences and adept at creating a business organization that can be profitable when operating in them.

The preceding statement is .

Which of the following are sound business reasons U.S. and foreign companies expand internationally? Check all that apply.

The desire to have access to new sources of raw materials and labor

The desire to relocate to places where the firms costs of production will be higher

The desire to enter new markets and engage with new customers

The desire to avoid political and regulatory obstacles and impediments