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30. Shareholder Rights of Investors in MNCs.

MNCs tend to expand more when they more


easily
access funds by issuing stock. In some countries, shareholder rights are very limited and so
the MNCs are less able to raise funds by issuing stock. Explain why access to funding is more
severe for MNCs based in countries where shareholder rights are limited.
ANSWER: Shareholders may be concerned that the agency problems of the local firms would
be very severe, if there are no laws that grant shareholders rights. They will only purchase
stock if they have rights that can help them force managers of local firms to serve shareholder
interests. Local investors can invest their money in other countries where there are
shareholder rights.