Question

The Korean Discount

If you think that accounting standards don’t matter, consider recent events in South Korea. For many years, international investors complained that the financial reports of South Korean companies were inadequate and inaccurate.

Accounting practices there often resulted in huge differences between stated revenues and actual revenues. Because investors did not have faith in the accuracy of the numbers, they were unwilling to pay as much for the shares of these companies relative to shares of comparable companies in different countries. This difference in share price was often referred to as the “Korean discount.”

In response, Korean regulators decided that companies would have to comply with international accounting standards. This change was motivated by a desire to “make the country’s businesses more transparent” in order to build investor confidence and spur economic growth.

Many other Asian countries, including China, India, Japan, and Hong Kong, have also decided either to adopt international standards or to create standards that are based on the international standards.

Source: Evan Ramstad, “End to ‘Korea Discount’?” Wall Street Journal (March 16, 2007).

Please give your comments on

1. The importance of making the business of the country so transparent.

2. Why increased transparency will stimulate economic growth of the country?

Answer 1

1 The importance of making the business of the country so transparent

Transparency builds trust, and makes employees feel that they’re working for a company with higher ethical standards. Half of them believe their employer is not upfront with them and open to the overall vision of the company.

When transparency is added to the corporate culture, employees will be more engaged and committed to the vision of the company.   The reason is they fully understand the mission and feel vested to share ideas, display their creativity, and bring about innovation to achieve the desired objective. People are always going to be first and best choice for operating within the solution before automation since when committed will add more continuous value to the process.

2 Why increased transparency will stimulate economic growth of the country?

Although transparency is a general prerequisite for the proper functioning of the market, it is also a core component of an effective anti-corruption policy. Transparency plays a critical role in ensuring the efficient allocation of resources by allowing the market to evaluate and impose discipline on government policy, and by increasing the political risk of unsustainable policies. In addition to these important functions, transparency can play a key role in preventing corruption and promoting good governance. By providing the public with access to information relating to government decisions and financial transactions, transparency can effectively deter illicit behaviour. Indeed, a number of studies demonstrate a positive correlation between corruption and the lack of public budget transparency. The more transparent the budget in a given country, the less corrupt the country is perceived to be