Globalization, Corporate Finance, and the Cost of Capital

• Published date: 01 March 2022
• Author: René M. Stulz
• Date: 01 March 2022
• DOI: http://doi.org/10.1111/jacf.12484

IN THIS ISSUE:

Honoring

René Stulz

VOLUME 34

NUMBER 1

WINTER 2022

APPLIED

CORPORATE FINANCE

Journal of

8Globalization, Corporate Finance, and the Cost of Capital

René M. Stulz, The Ohio State University

24 e Limits of Financial Globalization

René M. Stulz, The Ohio State University

32 Rethinking Risk Management

René M. Stulz, The Ohio State University

47 Risk Management Failures: What Are ey and When Do ey Happen?

René M. Stulz, The Ohio State University

58 How Companies Can Use Hedging to Create Shareholder Value

René M. Stulz, The Ohio State University

67 Real Options and Hidden Leverage

Stewart C. Myers, MIT Sloan School of Management, and

James A. Read, Jr., The Brattle Group

81 Enterprise Risk Management: eory and Practice

Brian W. Nocco, Nationwide Insurance, and René M. Stulz, The Ohio State University

95 Risk-Taking and Risk Management by Banks

René M. Stulz, The Ohio State University

106 FinTech, BigTech, and the Future of Banks

René M. Stulz, The Ohio State University

118 Merton Miller’s Contribution to Modern Finance

René M. Stulz, The Ohio State University

8Journal of Applied Corporate Finance • Volume 34 Number 1 Winter 2022

Over the last 50 years, the legal and regulatory barriers to

international investment have largely disappeared among

developed economies. And, in the past decade, such barri-

ers have fallen dramatically in many emerging markets. As

a result of these changes, U.S. investors can now buy secu-

rities of companies in many foreign countries with almost

no restrictions. Large U.S. corporations today raise funds in

dierent nancial markets throughout the world—sometimes

in simultaneous oerings in onshore and oshore markets.

Asian investors now worry about how the U.S. markets

performed while they were asleep because they believe that

the fate of their markets during the day depends on what

happened in New York in the past twelve hours. And morn-

ing news shows in the U.S. routinely discuss the overnight

returns of the Nikkei and Hang Seng indices in an eort to

forecast the performance of U.S. markets.

ough economists and nancial academics have gener-

ally welcomed this process of globalization and emphasized

its benets to investors and corporations, many policy makers

*This paper presents the implications for corporate nance of my working paper entitled

“Globalization of Equity Markets and the Cost of Capital,” which is available at http://www.

cob.ohio-state.edu/n/faculty/stulz under the heading “working papers.” I am grateful for

research assistance from Ed Gladewell, Jan Jindra, and Dong Lee; and for comments from

Yakov Amihud, Bernard Dumas, Peter Henry, Andrew Karolyi, John McConnell, Nils Tuch-

schmid, Ingrid Werner, and participants at the NYSE-Bourse de Paris Conference on Glob-

al Equity Markets in Paris and the BSI Conference in Lugano. I also thank the New York

Stock Exchange and the Bourse de Paris for nancial support. This article originally ap-

peared in the Journal of Applied Corporate Finance, Vol. 12 No. 3 (Fall 1999), 8-25.

When Malaysia imposed its restrictions on capital ows last year, the world nan-

cial community was stunned. Yet, for many years after World War II, such capital

controls would have seemed quite normal. After the war, almost all countries had tight

controls on currency conversion, which meant that outside investors could invest in foreign

markets only if they could get access to often scarce foreign currencies. In addition, most

countries also had explicit restrictions on foreign investment. Some countries prohibited their

own citizens from buying foreign shares. In many cases, foreign investors were forbidden to

buy local shares. And in countries where foreign investors were allowed to buy local shares,

the shares often carried lower (or no) voting rights—and there were typically limits to the

percentage of a rm’s shares that could be owned by foreigners. In addition to these legal

and regulatory constraints, there were also less formal deterrents to international investment.

Besides political risks such as the possibility of expropriation, there were major obstacles to

hedging foreign exchange rate risk as well as a near-total lack of coordination of accounting

standards among countries.

W

by René M. Stulz, The Ohio State University*

Globalization, Corporate Finance, and the

Cost of Capital