The Impact of the Adoption of International Financial Reporting Standards on Foreign Direct Investment in Africa

Matthew Olubayo Omotoso, Daniel Petrus Schutte and Heinz Eckart Klingelhöfer ()
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Heinz Eckart Klingelhöfer: North-West University

The African Finance Journal, 2020, vol. 22, issue 1, 21-49

Abstract: The goal of achieving a single set of financial reporting standards came into reality in 2001, when the International Accounting Standards Board (IASB) developed the International Financial Reporting Standards (IFRS). The expectation is that, with the adoption of uniform international accounting standards, it will enhance the quality and credibility of financial statements in terms of reliability, transparency, and comparability, thereby influencing the allocation of foreign capital and facilitating the inflow of foreign investments in the adopting countries. In this regard, the study examines the impact of the adoption of IFRS on FDI in Africa. Annual data of FDI were collected for the period 2005 to 2015. The study employs the panel data regression analysis using the system generalised method of moment (SGMM) to generate the parameter estimates to determine whether FDI inflows differ significantly between the adopting and non-adopting IFRS countries. Specific covariates that may influence the interpretation of the results were estimated along with the IFRS variables in the model. The findings provide empirical evidence about the effect of the adoption of IFRS on FDI and give more evidence about the impact of IFRS in Africa.

Keywords: IASB; transparency; accounting standards; comparability; financial statements; FDI (search for similar items in EconPapers)
JEL-codes: M41 M48 N27 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:afj:journl:v:22:y:2020:i:1:p:21-49

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