Existing management generally receives the

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Unformatted text preview: ot being solicited on the basis of false or misleading information. Existing management generally receives the stockholders’ proxies, because it is able to solicit them at company expense. Occasionally, when the firm is widely owned, outsiders may wage a proxy battle to unseat the existing management and gain control. To win a corporate election, votes from a majority of the shares voted are required. However, the odds of a nonmanagement group winning a proxy battle are generally slim. Dividends The payment of dividends to the firm’s shareholders is at the discretion of the corporation’s board of directors. Most corporations pay dividends quarterly. Dividends may be paid in cash, stock, or merchandise. Cash dividends are the most common, merchandise dividends the least. Common stockholders are not promised a dividend, but they come to expect certain payments on the basis of the historical dividend pattern of the firm. Before dividends are paid to common stockholders, the claims of the government, all creditors, and preferred stockholders must be satisfied. Because of the importance of the dividend decision to the growth and valuation of the firm, dividends are discussed in greater detail in Chapter 13. International Stock Issues American depositary receipts (ADRs) Claims issued by U.S. banks representing ownership of shares of a foreign company’s stock held on deposit by the U.S. bank in the foreign market and issued in dollars to U.S. investors. Although the international market for common stock is not so large as the international market for bonds, cross-border issuance and trading of common stock have increased dramatically in the past 20 years. Some corporations issue stock in foreign markets. For example, the stock of General Electric trades in Frankfurt, London, Paris, and Tokyo; the stocks of AOL Time Warner and Microsoft trade in Frankfurt; and the stock of McDonald’s trades in Frankfurt and Paris. The London, Frankfurt, and Tokyo markets are the most popular. Issuing stock internationally broadens the ownership base and also helps a company to integrate itself into the local business scene. A listing on a foreign stock exchange both increases local business press coverage and serves as effective corporate advertising. Having locally traded stock can also facilitate corporate acquisitions, because shares can be used as an acceptable method of payment. Foreign corporations have also discovered the benefits of trading their stock in the United States. The disclosure and reporting requirements mandated by the U.S. Securities and Exchange Commission have historically discouraged all but the largest foreign firms from directly listing their shares on the New York Stock Exchange or the American Stock Exchange. For example, in 1993, Daimler-Benz (now Daimler Chrysler) became the first large German company to be listed on the NYSE. Alternatively, most foreign companies tap the U.S. market through American depositary receipts (ADRs). These are claims issued by U.S. banks represen...
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