CHAPTER 2 OWNERSHIP STRUCTURE AND STOCK CLASSES
- Compare and contrast depositary receipts and cross-listed stocks.
Depositary receipts and cross-listed stocks both enable investors to purchase shares of a foreign corporation in their home market. Both mechanisms facilitate ownership in foreign institutions for investors. Cross-listed stocks represent direct listings by the corporation on a foreign stock exchange. Depositary receipts represent certificates of ownership in a company, which correspond to shares held by an intermediary financial institution. Cross-listed shares are always sponsored by the listing entity, whereas depositary receipts may or may not have the corporation's sponsorship. A financial institution can create a depositary receipt against the shares of a corporation without consulting the corporation. Moreover, because the financial institution holds the shares directly and then sells receipts representing those shares, depositary receipts are an indirect ownership vehicle.
- Discuss the benefits and drawbacks for investors in tracking stocks.
Tracking stock allows a corporation to offer shares for subdivisions of the parent organization, thereby increasing investor choice. If a conglomerate has a mature, slow-growing division and a high-growth division, it may offer tracking stock for the high-growth division. Investors may then choose whether to invest in the parent organization or invest solely in the high-growth ...