About the paper
The paper is commissioned to evaluate the stock performance of Toyota Motors, a non-US based entity that is listed on NASDAQ and Tokyo Stock Exchange. However, since the currency units are different on both the exchanges,we will transform the stock price in terms of monthly return percentage from 2009 till present date.
About the company and its stock listing
Founded in the year 1973, Toyota Motors Corporation is a Japanese automobile manufacturer. The company is headquartered in Aichi, Japan and is the second largest automobile manufacturer after General Motors. As of December, 2015, the company had employed 3,44,109 employees and is also the second largest company listed on the Tokyo Stock Exchange in terms of market capitalization. The company is also listed on New York Stock Exchange(NYSE) under the ticker symbol of ‘TM’.
Analyzing Stock Performance
Referring to the stock price of the company on Tokyo Stock Exchange and NYSE, we see that the same follows a high correlation, however, the return percentage of the stock on Tokyo Stock Exchange exceeds that on NYSE. As for NYSE, over the period of the past seven years, the stock price increased from $63.16 to $107.08, thus generating a compounded annual growth rate of 7.73%. On the other hand, during the same time period, the stock price surged from JPY 2925 to JPY 6140 on the Tokyo Stock Exchange, thus generating a compounded annual growth rate of 11.10%. The difference here can be explained in terms of strong performance of the company in the local market than the American market and also other local regulatory rules that might favor the company.
Important to note, it is now a common practice for foreign entities to get their stock listed in US based stock exchange in addition to their domestic exchange. Highlighted below are some of the rationales that justify the cross listing of shares:
i) Additional Diversification:
When a non-US firm issues stock in its owns country, the shareholding base is limited as the majority of the shares are held by the institutional investors. However, by listing the stock in the US based stock exchanges, which are more regulated and are stringent on listing and shareholding base, non-US stocks are thus able to diversify their shareholding base and thus are able to avoid any large stock price volatility.
ii) Access to sufficient liquidity
US markets are the most liquid stock markets in the entire world and thus, capital is available to the entities at a comparatively low-cost than that in their domestic market. In addition, for companies as large as Toyota,most of the capital projects demand investment in millions of dollars and thus it will not be possible for the domestic market to digest the entire stock offering. Henceforth, by listing in US stock exchanges, such companies are able to borrow large amount of capital and consequently, this process results in a legitimate global flow of capital.
iii) Investor Protection
Many a times, a non-US company is incorporated in a jurisdiction with less provision for investor protection. Therefore, by listing in US stock exchange, these companies commit to higher standard of corporate governance and are able to send a message to their global investors that their investment is channelized in a safe and ethical entity.
References
Historical Price: Toyota Motors Corporation(NYSE). (n.d.). Retrieved March 11, 2016, from Yahoo Finance: https://in.finance.yahoo.com/q/hp?s=TM&a=00&b=1&c=2009&d=02&e=11&f=2016&g=m
Historical Prices: Toyota Motors Corp. (n.d.). Retrieved March 11, 2016, from Investing.com: http://www.investing.com/equities/toyota?cid=44137
(2010). International Financial Markets. In J. Madura, International Financial Management (pp. 79-80). Cengage Learning.
Profile: Toyota Motor Corporation. (n.d.). Retrieved March 11, 2016, from Yahoo Finance: https://in.finance.yahoo.com/q/pr?s=TM
Appendix
Stock Price data(Both Exchanges):
