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1. Global integration of capital markets has given many firms access to new and
cheaper sources of funds beyond those available in their home markets.

2. This can be achieved by increasing the market liquidity of its shares and by escaping
from segmentation of its home capital market

3. A firm that must source its long-term debt and equity in a highly illiquid domestic
securities market will probably have a relatively high cost of capital and will face
limited availability of such capital which will, in turn, damage the overall
competitiveness of the firm.

4. A national capital market is segmented if the required rate of return on securities in

that market differs from the required rate of return on securities of comparable
expected return and risk traded on other securities markets

5. Capital market segmentation is caused mainly by:

 government constraints;
 institutional practices; and
 investor perceptions.

6. Segmentation reduces market liquidity which is the degree to which a firm can issue
a new security without depressing the existing market price and can affect a firm’s
cost of capital.

7. In the domestic case, a firm’s marginal cost of capital will eventually increase as
suppliers of capital become saturated with the firm’s securities.

8. In the multinational case, a firm can tap many capital markets above and beyond
what would have been available in a domestic capital market only.

10. If the firm is limited to raising funds in its domestic market, the line MCC D shows the
marginal domestic cost of capital.

11. If the firm has additional sources of capital outside the domestic (illiquid) capital
market, the marginal cost of capital shifts right to MCCF.

12. If the MNE is in a capital market that is illiquid and segmented, the line MCCU
represents the decreased mcc if it gains access to other equity markets.

13. Some studies state that MNE’s have a higher cost of capital because the cost of
equity required by investors is higher for multinational firms due to higher levels of
political risk, FE risk and higher agency costs.

14. Empirical studies also that indicate that MNEs have a lower debt/capital ratio than
domestic counterparts, resulting in a higher cost of capital

15. Contradicting studies indicate that MNE’s have a lower average cost of debt than
domestic firms, indicating that MNE’s have a lower cost of capital and at relatively
high levels of the optimal capital budget the MNE would have a lower cost of capital

16. In conclusion, if both MNEs and domestic firms actually limit their capital budgets to
what can be financed without increasing their MCC, then the empirical findings that
MNEs have higher WACC stands.

17. If the domestic firm has such good growth opportunities that it chooses to undertake
growth despite an increasing mcc, then the MNE would have a lower WACC.