Most investors — 93% — run background checks before funding their emerging markets investments, according to a survey of 303 investors by Deloitte Financial Advisory Services LLP, New York. Of this group, 70% have pulled out of investments because of information uncovered during a background check, according to the survey. The leading deterrent was poor corporate governance, followed by poor reputation/principals, lack of transparency, uncertainty over the ownership of a firm's assets and corruption in past or current activities.
"Investors can be very skeptical because there are so many unknowns involved with emerging markets," said Wendy Schmidt, principal and head of the business intelligence services group at Deloitte & Touche. "The investors need a comfort level with basic things like a company's integrity and reputation."
Investors reported that they most often conduct background checks to learn more about a firm's reputation, track record, key locations, financial standing, criminal problems, civil litigations and accounting.