Lack of transparency

Let’s look at Corporations in China. They have a horrible situation because what disclosure they do have isn’t correct or audited. They simply write down what they want. How can anyone price that? Isn’t the key to market efficiency having an idea about the value of the product, in this case, stocks? The lack of transparency, much like Ackerloff showed with his work in information asymmetry and used cars pricing being lower due to the buyer not knowing if it was a lemon or not, stocks would all fall in value if we couldn’t trust the foundation upon which the price was built. What if companies just made up the numbers? They could get away with it for years if there was no audit process, no disclosure requirements. Once we found that to be the case, who would buy a stock? Confidence would be lost and that is all that holds the markets together.

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