Financial Reporting Quality, Disclosure, and Emerging Market Companies' Access to Capital in Global Equity Markets

This study examines associations between financial reporting and disclosure quality, and access to capital in global equity markets by emerging market companies. We use a sample of 342 companies from 17 Latin American and emerging Asian countries, and estimate OLS and Ordered Logit regressions in which capital access is the dependent variable, and five proxies for these companies' financial reporting and disclosure quality are independent variables. To proxy for capital market access, we use a measure of global equity offering and listing activity. We find strong support for the hypothesis that financial reporting and disclosure quality is positively associated with emerging market companies' global capital market access, after controlling for factors expected to influence emerging market companies' ability to raise capital globally. The positive association between choice of more internationally accepted GAAP and access to capital, and the consequences of failing to translate readily available financial reports into English, are especially strong and consistent. However, we can find no support for the notion that choosing a global auditor is associated with greater access to capital for emerging market firms, and only mixed support that information dissemination over the internet and Standard & Poors Transparency and Disclosure ranks are positively associated with access to capital by our sample firms. Our results are robust to numerous re-specifications of the empirical proxies and estimation method. Due to sample limitations imposed by our test variables, our results support inferences to larger and more profitable firms that are growing more quickly than the average emerging market firm from Latin America and Asia.