Do the Rules Attract the Money? Implication of IFRS Adoption on Foreign Direct Investment
22 Pages Posted: 2 Jul 2014
Date Written: June 30, 2014
The adoption of IFRS is expected to significantly affect the quality of global financial reporting and improve investment decisions. A major question that arises, therefore, is: does this stance hold when the time dimension, post IFRS adoption period (i.e. the number of years a country has adopted IFRS), is considered? Secondly, what role do institutions play in this relationship? A sample of 92 countries, comprising of both developed and developing countries, was selected for the period 2002-2010. The baseline model comprise of the macro-economic, structural covariates and measures of institutions, IFRS adoption and the interactions between institutions and IFRS adoption. The System Generalized Method of Moments estimation technique was used for the data estimations. The results show that IFRS is not able to attract much of FDI, and institutional development plays a substitutive role in this regard. This implies that as they pursue the adoption of IFRS, countries should drive at the development of their institutional capacity through policies that will support private investment, regulatory quality, and rule of law, property rights and protection and control of corruption.
Keywords: FDI, Financial Reporting, Developing countries, IFRS adoption, Institutions.
JEL Classification: M41, G14, F42
Suggested Citation: Suggested Citation