2.4 Explain how international differences in ownership and financing of companies could lead to differences in financial reporting.

Topics: Finance, Common law, Stock market Pages: 2 (573 words) Published: October 16, 2014
2.4 Explain how international differences in ownership and financing of companies could lead to differences in financial reporting. Different countries have different types of ownership. Capital provided by banks is very significant, as are small family member in Germany, France and Italy which they are also similar in using the Codifies Roman Law as their legal system. In the other hands, in the United States and United Kingdom there are large number of companies that rely on millions of private shareholder for finance, including Malaysia. This difference has the important effect that lead to differences in financial reporting. La Porta et al. (1997) find a statistical connection between common law countries and strong equity markets. In his findings, he notes that common law countries such as United States have stronger legal protection of investor than Roman law countries do. Zysman (1983) has proposed grouping of countries into types by financial system which are capital market system (United Kingdom, United States), credit-based government system (France , Japan) and credit-based financial institution system (Germany). it could be simplifies further to ‘equity’ and ‘credit’. In credit countries, even the relatively few listed companies may be dominated by shareholders who are banker, governments or owner of companies as well as provider of debt finance. A majority of shares in many public companies are owned or controlled as proxies by banks for example the Deutsche Bank. In Germany, France or Italy the bank or state will nominate directors and thus be able to obtain information and affect decision. In European countries, the listed companies are dominated by banks, governments or families, the need for published information is less clear, same goes to audit because it is designed to check up on the managers in cases where the owner is outsider. Frank and Mayer (2001) come up with hypothesis that in...
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