emerging marketsareoftenincomplete andleave out large
chunksofrelevantinformation,largelyasaconsequenceof
lax regulatory requirements. Berglof and Pajuste (2005)
examine the financial statements of 370 Central and East
Europeanfirmsand findwidespreadnondisclosureofbasic
information on governance and performance.
2 However, they also find that disclosurepolicies depend
moreuponthelegalframeworkandpracticeinthecountryin
whichacompanyisincorporated,ratherthanthecompany’s
characteristics.Itstandstoreasonthatcompaniesthatoperate
inmarketswherepoordisclosurepoliciesarecondonedwill
have little incentive to improve their practices.
Accounting Standards
Based on thepreceding section, it would seem that more
disclosure is better than less and that requiring more
informationshouldthereforemakefirmsmoretransparent.In
this section, we examinetheunderside ofthese disclosure
requirements,whichismorecomplicatedanddifficult-to-use
financial statements. In fact, accounting standards and
practicesbearsome oftheresponsibility fortheincreasing
complexityoffinancialstatements,especiallyintheUnited
Statesand Europe. Some ofthe problemswith accounting
statementsarisefromthewayinwhichaccountingstandards
arewrittenandtheleewaythattheyprovidetofirmsintheir
interpretation, and some of the problems arise from the
changesthathavebeenmadetothesestandards,oftenwith
the best of intentions.
Inconsistency in Applying Accounting Principles