Early Adoption of IFRS as a Strategic Response to Transnational and Local Influences

In recent years, International Financial Reporting Standards (IFRS) have been adopted by nations throughout the world. Proponents and standard setters assert that IFRS will produce a number of benefits including improved transparency, international comparability, market efficiency, and cross-national investment flow. In this study, we examine factors that contributed to the early national-level adoption that occurred prior to broad global acceptance of IFRS. Using a conceptual framework of institutional theory and resource dependence, we propose that the interplay of transnational pressures and local factors influenced the level of adoption. We predict differential adoption as a strategic response at three levels of either require IFRS, permit IFRS, or do not allow IFRS, using a sample of 71 countries. As predicted, countries with greater resource dependency, as evidenced by weak governance structures and weak economies, were the early adopters who were more likely to require the use of IFRS. Further, resource dependence also trumps nationalistic pressures against transnational conformity. Our findings raise concerns that required adoption may not always be accompanied by an appropriately supportive infrastructure; thus, there are implications not only for adoption of IFRS, but also for the diffusion of other transnational regulation that influences global business environment.