There is a link between expanded disclosure and a firm's cost of capital:
In a world of uncertainty, returns from investments are viewed as a probability distribution.
Investors use some measure of dispersion of a security's expected returns such that the correlation of those returns with those of other securities as measures of the risk associated with a security.
Investors prefer a higher expected return for any level of risk or a lower level of risk for a given expected return
A security's value is positively related to its expected return streams and inversely related to the risk associated with those returns.
MNC Accountability Seems to be Growing to the Public at Large for Both their Policies and Actions
Reasons for this may include:
The development and growth of the influence of trade unions in most developed countries. Labor unions are interested in the terms, conditions, security, and location of employment.
The increase in what has been called the democratic imperative with the demand for recognition of the view that those who are significantly affected by the decision made by institutions in general must be given the opportunity to influence those decisions.
The postwar rejection by many governments of classical economic premises such as the belief that the unregulated pursuit of private gain maximizes societal welfare.
The substantial growth in industrial concentration, which has given rise to corporations large enough to assert a significant influence on national economic and social policies of host countries.
Information demands of the corporation's enlarged reporting constituency cannot be ignored if the corporation is to continue to enjoy the degree of freedom it has been granted in the past in managing a significant portion of any nation's scarce resources.
A number of international organizations have adopted operating postures aimed at increasing their regulatory grip on transnational disclosure practices.
effective regulatory structure for an international securities market system should include, among other things, sound disclosure systems that protect investors while simultaneously balancing costs and benefits for market participants.
Expects investors in other countries to fend for themselves as far as transnational reporting goes.
In other words, companies will make copies of annual reports available to investors whenever they happen to have a mailing address, but no special efforts are made to assist such foreign users with understanding and interpreting financial reports prepared on a basis often significantly different from what the reader may expect.
Some may translate at least the language portion of their reports for major concentrations of stockholders.
Even financial analysts and others in the financial community tend to interpret convenience-type statements as comparable in substance to domestically prepared statements for purposes of financial comparisons and securities analysis.
Differences in underlying independent auditing standards and practices may lead to a misinterpretation of the degree of third-party reliability that may be placed on convenience statements.
A small number of MNCs have made an effort to explain to readers in other countries the particular accounting standards and practices forming the basis for their reporting.
For instance, MNCs domiciled in Sweden now typically include a copy of the most recent information book entitled Key to Understanding Swedish Financial Statements with each copy of their financials mailed to non Swedish addresses.
Phillips Company estimates what earnings adjustments would be required if accounting principles generally accepted in the US rather than in the Netherlands were followed.
Dutch investors see earnings and per share numbers that are consistent with local accounting practices, while their US counterparts are at least provided with earnings numbers that are readily understood and can be used comparatively.
At the national level, employee disclosures perhaps find their greatest expression in France.
France requires all enterprises employing more than 750 employees to supply their works councils union representatives with an annual social report covering in detail such matters as employment, wages, social costs, working conditions, and training and industrial relations.
These reports do not have to be furnished for external use, but there is a growing practice for French firms to supply their shareholders with social data.