investors being willing to pay more for stocks in
these markets.- When firms in emerging markets have American
depositaryreceipts(ADRs)listedontheU.S.market,
theirstockpricesreactpositively.Whiletherearea
number of possible explanations for this
phenomenon, oneis that thesefirms oftenhaveto
restate their financial statements using generally
acceptedaccountingprinciples in theUnitedStates
and provide more information to investors.
Aswiththeotherevidencepresentedoncomplexity,weare
cautiousininterpretingtheseresultsbecausethereareother
factorsatplayaswell.Forinstance, emergingmarketsthat
changedisclosurerequirementsalsooftenchangecorporate
governancepracticesatthesametime,andcompaniesthatlist
ADRs also see a postlisting increase in liquidity.
DEALING WITH COMPLEXITY
Reviewingthelastfewsections,wecannowstatethethree
basic questions that we have to address in dealing with
transparency in valuation:
1.What do we use as a measure of complexity in valuation?
2.Should we reflect this complexity in value?
3.Ifwedecidetoincorporatecomplexityintovalue,howdo
we value complexity (or transparency)?
Inpriorsections,wehaveestablishedthatwhilemeasuresof
complexityexist,theultimatetestisasubjectiveone,andthat