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

Author

Listed:
  • Matthew Olubayo Omotoso
  • Daniel Petrus Schutte
  • Heinz Eckart Klingelhöfer

    (North-West University)

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.

Suggested Citation

  • Matthew Olubayo Omotoso & Daniel Petrus Schutte & Heinz Eckart Klingelhöfer, 2020. "The Impact of the Adoption of International Financial Reporting Standards on Foreign Direct Investment in Africa," The African Finance Journal, Africagrowth Institute, vol. 22(1), pages 21-49.
    • Handle: RePEc:afj:journl:v:22:y:2020:i:1:p:21-49
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    File URL: https://journals.co.za/content/finj/22/1/ejc-finj-v22-n1-a2
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    More about this item

    Keywords

    IASB; transparency; accounting standards; comparability; financial statements; FDI;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • N27 - Economic History - - Financial Markets and Institutions - - - Africa; Oceania

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