their requirements, and that can be accessed efficiently at a reasonable price or cost
of capital when compared to the next best alternative. The size of the flotation some-
times necessitates an international offering, as has been the case, for example, with
certain privatizations such as British Telecom in 1984, the Royal PTT Nederland NV
in 1995 and Petro China Company Limited in 2000. In other cases, internationally di-
versified companies from relatively small countries outgrow their home country’s
capital market and/or desire an international presence, for example, Nokia from Fin-
land. There are now 40 non-U.S. banks registered with the SEC, reflecting their de-
sire, in some cases, for access to competitively priced debt finance in a liquid and so-
phisticated market that affords them greater financial flexibility. A high percentage of
cross-border capital raisings involve simultaneous offerings in each enterprise’s
home country and in the United States, as well as an “international” offering which
in practice could mean Canada or Japan, but most probably Europe. This structure
forces the senior management of the enterprise, and its accountants, lawyers, and in-
vestor relations people to deal simultaneously with the conflicting demands of in-
vestors, analysts, and regulators in different countries. As a result there is now a
much greater appreciation of the strengths and weaknesses of different approaches to
market regulation (e.g., insider trading and preoffering advertisements), corporate
governance, disclosure, and financial reporting regimes.
The trend toward globalization of the capital markets can be illustrated by the re-
cent developments in the United States. By December 31, 2001, there were 1,344
non-U.S. enterprises registered with the SEC, representing some 59 countries from
around the world. Approximately 77 non-U.S. enterprises entered the U.S. public
markets for the first time in 2001, down from levels experienced in 1999 and 2000.
In 2001, non-U.S. enterprises raised more than US$40.0 billion of debt and equity
capital and over the past six years have raised over US$300 billion. Of the 1,344 non-
U.S. registrants, approximately 600 or 45%, entered the United States during the last
six years. Because the accounting principles of so many countries are involved and
as the volume of transactions has increased, so too has the pressure to simplify the fi-
nancial reporting process where possible.
Cross-border mergers and acquisitions have skyrocketed in this past decade, ex-
emplified by the fact that, in 2001 alone, foreign investors spent over US$158 billion
to buy American businesses, while American buyers spent over US$156 billion in
acquiring foreign companies. These amounts of foreign investments were even
higher during the mid to late 1990s.
The exchanges in the United States and London are highly internationalized. The
volume of trade in foreign shares on the New York Stock Exchange and London
Stock Exchange reached US$787 billion and US$2,651 billion respectively in 2001.
Approximately 11% of listings on major exchanges throughout the world in 2001
were foreign (see Exhibit 12.1).
With all of this international activity taking place, creditors, investors, regulators,
and others in the business world need to better understand cross-border financial in-
formation. A multinational firm’s management needs to be able to compare the per-
formance of each of its operations in other countries. Management also must accu-
rately assess its competition. In addition, lenders and investors need comparable and
consistent information to make informed decisions. Therefore, the financial informa-
tion generated by an enterprise serves as a basis for making critical business deci-
sions.
12.2 GLOBALIZATION OF FINANCIAL DECISIONS 12 • 3