EECS 1710 Lecture Notes - Lecture 39: Financial Statement
24 Jun 2018
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EECS 1710 Lecture 39 Notes
Introduction
Integration of Stock Markets
ď‚· The variation may be due to accounting laws set by the government for public
companies or to reporting rules enforced by local stock exchanges.
ď‚· Shareholders are less susceptible to losses stemming from insufficient information when
more transparency is required of public companies in their financial reporting.
ď‚· In general, stock markets that allow more voting rights for shareholders, more legal
protection, more enforcement of the laws, less corruption, and more stringent
accounting requirements attract more investors who are willing to invest in stocks.
ď‚· This allows for more confidence in the stock market and greater pricing efficiency (since
there is a large set of investors who monitor each firm).
ď‚· At the same time, the presence of many investors will attract a company to the stock
market because under these conditions it can easily raise funds.
ď‚· A stock market that does not attract investors will not attract companies in search of
funds
ď‚· In this case, companies must rely either on stock market in other countries or on credit
markets (such as bank loans).
ď‚· Since the economies of countries are integrated and since conditions in the stock
market reflect the host country’s prevailing and anticipated economic conditions, it
follows that stock market conditions are integrated.
ď‚· In particular, stock market conditions among European countries are highly correlated
because the European economies are highly correlated.
ď‚· Strong stock market conditions in a few European countries have a favorable effect on
other European stock markets because optimism in one market can spread throughout
Europe.
Document Summary
The variation may be due to accounting laws set by the government for public companies or to reporting rules enforced by local stock exchanges. In this case, companies must rely either on stock market in other countries or on credit markets (such as bank loans). In particular, stock market conditions among european countries are highly correlated because the european economies are highly correlated. Strong stock market conditions in a few european countries have a favorable effect on other european stock markets because optimism in one market can spread throughout. Likewise, adverse stock market conditions in one or more european countries can adversely affect other european stock markets because one market"s pessimism can spread throughout europe. To accounting laws set by the government for public companies or to reporting rules enforced by local stock exchanges. Shareholders are less susceptible to losses stemming from insufficient information when more transparency is required of public companies in their financial reporting.
