Question

Why financial reporting is important to capital markets ? Explain in a couple of paragraphs

Answer 1

A business require funds to smoothly run its business. Capital market is the source of long term finance for the government , banks and corporate. Funds are raised through issuance of bonds , shares and securities by the members of the capital market. Mechanism of capital market is that investors invest in the shares and securities of the member companies and theses companies receive funds through these investments. Investors in return get the return on periodic basis in the form of dividend and interest.

   Now, financial reporting is very important in capital market because investors rely a lot on the the financial information submit by the corporate. And if this information is incorrect and not trustworthy than it will adversely affect the interest of the investors. So, it is very essential to put the information correctly and timely. Moreover, if financial reporting is showing that company is profitable than, company can raise funds easily. So, financial reporting is important for both investors and capital stock members.