Business Communications Section 1
April 4,, 2013
Intelligent investors avoid injecting capital into opaque enterprises. Educated investors know that business structures are riskier and less valuable investments in companies that lack transparency in their business operations, financial statements or strategies. Corporate transparency has been an ever-growing concern between the investment sector as well as the general public due to recent accounting and corporate scandals, during 2001 and 2002 in particular. These accounting scandals have provoked regulators and investors alike to raise serious questions about the credibility of corporate financial ...view middle of the document...
Although disclosure does not necessarily reduce all risks of corruption, researchers from Transparency International explain, “they are a sign of the right tone from top management, reflecting an awareness of corruption risks that is essential for companies operating globally.” Disclosure of organizational and financial data allows citizens, lawmakers and investors to understand where a company is operating, and it makes the company accountable in those countries. Investors’ trust increases with greater organizational transparency because it is easier for investors to detect potentially abusive “intra-group trading known as transfer pricing, tax evasion and other harmful behavior“ that would deter decisions to invest in a company.
Exhibit 1 shows Transparency International’s findings on disclosure of financial data of 105 multinational corporations surveyed in its study.
The information displayed in Exhibit 1 demonstrates the prevalence of opaque multinational companies currently in the international market. As depicted in Exhibit 1, only 20 out of 105 companies disclose income tax information in any country of foreign operation. This lack of disclosure makes it difficult to hold governments accountable for the way they use revenues from multinational companies, and more difficult to track the contribution of companies. It is relevant to notice the trend of multinational corporations lack of transparency in Eurozone debt crisis countries, 65 of the 105 surveyed companies operate in Spain, but a mere three publicly disclose their income taxes paid in the country. Greece is even more opaque; none of the 43 surveyed companies operating there disclose income taxes.
The financial sector proved to be the least transparent sector in the study conducted by Transparency International researchers. Exhibit 2 depicts percentages of transparency scored by the surveyors with 100% referring to complete transparency.
Several U.S, European, and Chinese companies are among the least transparent of the financial companies assessed. The recent financial crisis’ come as no surprise when examining the lack of transparency throughout the financial sector as presented in Exhibit 2.
The U.S and Europe: Comparing Standards for Transparency
The U.S government has played a much more significant role in regulating corporate transparency than the European community; however, reforms have been enacted in Europe over the last 15 years to enhance disclosure and strengthen public enforcement. First, this section will examine differences in standards of corporate transparency between the U.S and Europe. This section will then briefly discuss two financial fraud scandals resulting from lack of transparency—one from the U.S and one from Europe. This section will support the notion that the increase in regulations to enhance disclosure creates a more ethical...