The factor that has perhaps contributed most to the growing interest in international accounting among corporate executives, investors, market regulators, accounting standard setters, and business educators alike is the internationalization of the world’s capital markets. Statistics indicate that the dollar volume of cross-border equity flows increased by more than twenty-fold since 1990 while the value of international securities offerings more than quadrupled during the same time period exceeding $1.5 trillion today. International offerings in bonds, syndicated loans, and other debt instruments have also grown dramatically since the 1990s. Investment banks Russel, Greenwich.
Associates, Morgan Stanley, Merrill Lynch, and Grail Partners estimate that global retail hedge fund investments will grow to $2.5 trillion by 2010, representing a 14.3% compounded annual growth rate since 2005. As financial markets are becoming more integrated, we are witnessing an increase in the number of companies listed on the world’s stock exchanges. Exhibit 1-6 discloses the number of domestic and foreign companies listed on the world’s major exchanges.
Over the last ten years, global market capitalization more than doubled to well over $40 trillion. The World Federation of Exchanges reports that while the number of domestic companies with shares listed increased in some markets and decreased in others during the early part of this decade, the average sizes and and annual trading volumes of listed companies have grown substantially, in part due to mergers and acquisitions, which also result in the listings of some of the entities involved.
In recent years, world financial markets have experienced tumultuous declines owing to the recent credit crisis and its effects on economic performance. On a relative basis, however, some emerging markets have experienced lower relative declines. discloses the percentage change in stock market capitalization, not to be confused with market returns, for the year ended 2008 in both U.S. dollars and local currency by international time zones. The countries listed exhibited the smallest declines in market capitalization in U.S. dollars from the prior year. It is notable that most of the exchanges identified were located in emerging markets. It should also be evident that foreign exchange rate changes must be taken into account by non domestic investors when gauging market performance. It is not surprising that the traditional preference of investing in one’s back yard is beginning to give way to investors exploiting the most attractive investment opportunities wherever they may be located.
The three largest equity market regions are the Americas, Asia-Pacific, and Europe, including Africa and the Middle East.7 Since the tragic events of 9/11, markets in all three regions have grown significantly.
