Abstract
Currently one of the most discussed economic phenomena of all times, globalisation has had a major impact on the world economy. Traditionally driven by trade, this globalisation is now taking a new form through a growing internationalisation of the world's financial markets. The value of global financial assets has been multiplied more than fifteen fold during the last 30 years (Farrell, Fölster and Lund, 2008); while global market capitalisation more than doubled over the last decade (Choi and Meek, 2008). More especially, capital markets (markets for long-term funds where securities such as stock and bonds are traded (Morgenson and Harvey, 2002)) also benefited from this increase, with the value of international securities offerings now exceeding US$ 1.5 trillion, 4 times more than 30 years ago (Choi and Meek, 2008).
For companies, this growing integration of capital markets offers the possibility to seek capital outside of their home country, while investors are given the possibility to exploit investment opportunities wherever they are located, both resulting more interesting opportunities. However, the effective functioning of those markets is made contingent to a good financial reporting. Indeed, to satisfy their decision needs, external investors are in need of financial information that is both comparable and reliable. They are thus facing difficulties due to the diversity in national reporting requirements and practices; which has resulted, for the last 50 years, in global efforts attempting to harmonize financial reporting standards around the world.
That is why "policy-makers are confronted with the question of how to develop a sound financial reporting infrastructure", an issue that is notably function of the quality of the standards and the corporate governance under which they are applied (e.g. Kothari, 2000; Tweedie, 2005). That is why this paper intends to answer this question by exploring the relation and the current impact of those two pillars on financial reporting.
