Accounting view on the feasibility of a global capital market

Paper proposes a theory for testing the feasibility of a global capital market from an accounting perspective. The theory connects the area of accounting regulations and the place where the result of their application is put into use, namely the capital market. Quantifying this connection is done indirectly, by using two direct connections. First we quantify the similitude degree of the considered accounting regulations based on a detailed content analysis. Secondly we quantify to what extent the foresights of the considered accounting regulations are actually used in practice by companies being listed on the capital market. Once determined the two correlations we derive the link between a certain capital market and a set of accounting regulations that is different from the one officially being applied by companies listed in the considered market.

The proposed theory is tested by considering accounting regulations issued by the IASB and the FASB and companies being listed on the LSE and the NYSE, focusing on financial assets’ measurement. Interpreting the obtained results we might say that the documented feasibility of a global capital market in the considered setting is of 26.49%. In other words, the feasibility of a global capital market, when considering the London Stock Exchange and the New York Stock Exchange as components, is of 26.49%. Furthermore, an even more important conclusion is that being able to formulate the previous findings based on the developed conceptual and methodological algorithm documents the sustainability of the proposed theory, namely the Global Capital Market Feasibility Theory.

We can say that in case companies being listed on the LSE would be asked to start applying US GAAPs, we have documented that in terms of financial assets’ measurement their accounting practices already correspond with the American referential foresights for 5.97%. From the other point of view, we notice that companies being listed on the NYSE already have accounting practices that correspond with the foresights of the IFRS for 26.49%  when looking at financial assets’ measurement.

We therefore conclude by underlining the validity of the proposed theory based on the fact that we have dimensioned a conceptual and methodological algorithm that was applied and generated results that allowed the interpretation of the feasibility of a global capital market between financial reporting theory and practice.