Quĩ đầu tư - Chapter 8: Overview of equity securities

Chapter 8 Overview of Equity SecuritiesPresenterVenueDateEXHIBIT 8-1 Country and Regional Contributions to Global GDP and Equity Market Capitalization (2007)Source: MacroMavens, IMF World Economic Outlook 2008, Standard & Poor’s BMI Global Index weights. EXHIBIT 8-2 Equity Markets Ranked by Total Market Capitalization at the End of 2008 (billions of U.S. dollars)Source: Adapted from the World Federation of Exchanges 2008 Report (see EXHIBIT 8-3 Real Returns on Global Equity Securities, Bonds, and Bills during 1900-2008Source: E. Dimson, P. Marsh, and M. Staunton (2009)EXHIBIT 8-6 International Comparisons of Stock Ownership in Selected Countries: 2000–2008Source: Adapted from the 2008 Australian Share Ownership Study conducted by the Australian Securities Exchange (see For Australia and the United States, the data pertain to direct and indirect ownership in equity markets; for other countries, the data pertain to direct ownership in shares and share funds. Data not available in specific years are shown as “N/A.”Common ShareholdersOwnership interestsShare in the operating performance of the company.Residual claimantsClaim on assets after all liabilities have been paid.Governance participantsVoting rights on major corporate decisions.Voting RightsVoting rightsStatutory votingCumulative votingShare classesVote by proxyEmbedded OptionsCallable common sharesPutable common sharesPreference Shares (Preferred Stock)Rank above common stock for dividend payments and liquidation claimsShareholders do not share in the firm’s operating performanceGenerally do not have voting rightsDividends are fixed and typically higher than common dividendsDividends on Preference SharesCumulativeNoncumulativeParticipatingNonparticipatingPossible Advantages of Convertible Preference SharesEarn a higher dividend Opportunity to share in profits Benefit from a rise in the price of the common shares Price is less volatile than the common share pricePrivate Equity SecuritiesEquity securitiesPrivateVenture capitalLeveraged buyoutsPrivate investment in public equityPublicInvesting in Nondomestic Equity SecuritiesDirect investmentBuy and sell shares directly in foreign markets.Depository receipts (DR)Global depository receipts (GDR)American depository receipts (ADR)Global registered share (GRS)Basket of listed depository receipts (BLDR)EXHIBIT 8-16 Summary of the Main Features of American Depository ReceiptsSource: Adapted from Boubakri, Cosset, and Samet (2008): Table 1.Return Characteristics of Equity SecuritiesDividend incomePrice change (capital gain)Foreign exchange gains or lossesReinvested dividendsEXHIBIT 8-17 Impact of Reinvested Dividends on Cumulative Real Returns in the U.S. Equity Market: 1900–2008Source: Dimson, Marsh, and Staunton (2009). Methods for Estimating Risk and ReturnHistorical dataAverage rate of returnStandard deviationProbability distribution of possible returnsExpected returnStandard deviationPreference Shares Are Less Risky than Common SharesFixed dividendPriority claim on incomeKnown liquidation valueLess riskEmbedded Options and RiskHigher risk:CallableNonputableNoncumulativeLower risk:Noncallable PutableCumulativeWhy Issue Equity?Raise capitalFinance revenue-generating activitiesEnsure going concern statusIncrease liquidityMergers and acquisitionsStock-based compensationGoals for Managing EquityIncrease book valueMaximize market valueIncrease net incomeRetain more earningsIssue sharesManage investors’ expectationsAccounting Return on Equity (ROE)Financial Year Ending31 Dec 200831 Dec 200731 Dec 2006PfizerNet income$8,104,000$8,144,000$19,337,000Total stockholders’ equity$57,556,000$65,010,000$71,358,000Market Value, Book Value, and Price-to-Book RatioMarket value of equity = Market price per share × Shares outstandingMarket value of equity = US$16.97 × 6,750,000 = US$114,547,500Book value of equity per share = Total shareholders’ equity/Shares outstandingBook value of equity per share = US$57,556,000/6,750,000 = US$8.53 Price-to-book ratio = Market price per share/Book value of equity per sharePrice-to-book ratio = US$16.97/US$8.53 = 1.99The Cost of EquityCompany wants to raise equity capitalCompany not contractually obligated to shareholdersWhat is the cost of equity?Investor’s Required Rate of ReturnInvestor’s minimum required rate of returnCost of equityEstimate with pricing models: dividend discount model (DDM), capital asset pricing model (CAPM), etc. SummaryTypes of equity securitiesImportance and relative performance of equity securitiesOwnership characteristics and voting rightsInvesting in nondomestic equitiesRisk and return characteristicsMarket value and book valueCost of equity, (accounting) return on equity, and investor’s required return