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More Countries Adopting Good Governance, International Reporting Standards Policies: Milken Institute Report

(May 01, 2008)-- Global investors looking for a positive trend have some good news: adoption of International Financial Reporting Standards has increased financial transparency and lowered risk for investors, as measured by the 2008 Opacity Index, released today by the Milken Institute. According to the report opacity works like a hidden tax on business, costing countries growth, companies profits and investors higher returns.

Additional improvements in corporate governance and compliance with voluntary codes of conduct have helped raise the scores of most of the 48 countries ranked by risk in the index. The United States, however, fell in its standing due in part to delayed effects of the Sarbanes-Oxley Act of 2002.

According to the report, opacity is measured by small-scale but frequent risks, such as corruption and opacity in financial markets that work as deterrents to economic growth. A single-point increase in an Opacity score means foreign direct investment as a percent of GDP can decrease by 0.18 percentage point.

Finland scores best, reflecting the country's solid regulatory environment, low levels of corruption and compliance with international standards for accounting rules and practices. "Companies in Finland are more transparent to foreign investors and partners, whose due diligence, legal, and accounting costs are reduced," the report states. Lower overall business costs allow higher-wage countries like Finland to compete for investment capital with lower-wage countries.

In the 2008 rankings, the United States fell to 13th place from 4th place because of turbulence in the markets and other factor, including over-regulation due to Sarbanes-Oxley.

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