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The Effect of IFRS Adoption on Trade and Foreign Direct Investments

Author

Listed:
  • Laura Márquez-Ramos

    (Department of Economics and Institute of International Economics, Universitat Jaume I, Castellón (Spain))

Abstract

This paper focuses on the importance of accounting harmonisation on foreign activities from a macroeconomic perspective. International Financing Reporting Standards (IFRS) adoption is considered to reduce information costs among countries and is, therefore, an important way to encourage international trade flows and investments. Moreover, heterogeneity in trade and FDI determinants among different European countries (well-established capitalist countries in the "West" and post-communist countries in the "East") is analysed since transition economies present a lower development of market institutions and, therefore, of financial systems. The effect of IFRS adoption is analysed from a gravity framework. The fixed-effects vector decomposition (FEVD) procedure, recently proposed by Plumper and Troeger (2007), is used to estimate panel data characterised by the presence of time invariant variables, or variables which vary rarely in time. The results provide evidence that benefits exist in terms of trade and FDI when IFRS are adopted. Furthermore, the positive effect of adopting uniform accounting standards on foreign activities in Europe is higher in transition economies. Finally, this effect also differs in countries because of behavioural factors such as unfamiliarity aversion.This paper was presented at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa, Lisbon, Portugal, May 23, 2008.Keywords: IFRS, international trade, FDI, transition countries, FEVD. JEL classification: F40

Suggested Citation

  • Laura Márquez-Ramos, 2008. "The Effect of IFRS Adoption on Trade and Foreign Direct Investments," International Trade and Finance Association Conference Papers 1124, International Trade and Finance Association.
    • Handle: RePEc:bep:itfapp:1124
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    Cited by:

    1. Bogdan DIMA & Stefana Maria DIMA & Miruna-Lucia NACHESCU, 2018. "Does IFRSs adoption contribute to the protection of minority investors?," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 16(152), pages 584-584.
    2. Cătălina Florentina PRICOPE, 2016. "The role of institutional pressures in developing countries. Implications for IFRS," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(607), S), pages 27-40, Summer.
    3. Akisik, Orhan, 2020. "The impact of financial development, IFRS, and rule of LAW on foreign investments: A cross-country analysis," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 815-838.
    4. Houqe, Muhammad Nurul & Monem, Reza M., 2016. "IFRS Adoption, Extent of Disclosure, and Perceived Corruption: A Cross-Country Study," The International Journal of Accounting, Elsevier, vol. 51(3), pages 363-378.
    5. Omar Al Farooque & Subba Reddy Yarram, 2013. "Evidence On Two-Way Relationships Between Foreign Direct Investment Inflows And Country-Level Individual Governance Indicators," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 58(02), pages 1-26.
    6. Aldys Tan & Bikram Chatterjee & Victoria Wise & Mahmud Hossain, 2016. "An Investigation into the Potential Adoption of International Financial Reporting Standards in the United States: Implications and Implementation," Australian Accounting Review, CPA Australia, vol. 26(1), pages 45-65, March.

    More about this item

    Keywords

    ifrs; international trade; fdi; transition countries; fevd. jel classification: f40;
    All these keywords.

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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