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Why do countries adopt International Financial Reporting Standards?

Author

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  • Karthik Ramanna

    (Harvard Business School, Accounting and Management Unit)

  • Ewa Sletten

    (MIT Sloan School of Management)

Abstract

In a sample of 102 non-European Union countries, we study variations in the decision to adopt International Financial Reporting Standards (IFRS). There is evidence that more powerful countries are less likely to adopt IFRS, consistent with more powerful countries being less willing to surrender standard-setting authority to an international body. There is also evidence that the likelihood of IFRS adoption at first increases and then decreases in the quality of countries' domestic governance institutions, consistent with IFRS being adopted when governments are capable of timely decision making and when the opportunity and switching cost of domestic standards are relatively low. We do not find evidence that levels of and expected changes in foreign trade and investment flows in a country affect its adoption decision: thus, we cannot confirm that IFRS lowers information costs in more globalized economies. Consistent with the presence of network effects in IFRS adoption, we find that a country is more likely to adopt IFRS if other countries in its geographical region are IFRS adopters.

Suggested Citation

  • Karthik Ramanna & Ewa Sletten, 2009. "Why do countries adopt International Financial Reporting Standards?," Harvard Business School Working Papers 09-102, Harvard Business School, revised Mar 2009.
    • Handle: RePEc:hbs:wpaper:09-102
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    Cited by:

    1. Forst, Arno, 2014. "IFRS implementation in the European Union and the survival of accounting families," Advances in accounting, Elsevier, vol. 30(1), pages 187-195.
    2. Atul Bansal, 2011. "Impact of IFRS on Indian Infrastructure and Real Estate Industry," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 2(1), pages 168-176, January.
    3. Burca Valentin, PhD candidate & Assist.Nagy Mariana, PhD professor, 2014. "Clusters Describing Ifrs Adoption Stage," Revista Tinerilor Economisti (The Young Economists Journal), University of Craiova, Faculty of Economics and Business Administration, vol. 1(23), pages 15-30, November.
    4. Bonito, Ana & Pais, Cláudio, 2018. "The macroeconomic determinants of the adoption of IFRS for SMEs," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 21(2), pages 116-127.
    5. Taisia Nistorenco, 2019. "Compliance with Disclosure Requirements under IFRS 3 of Companies Trading at Prague Stock Exchange," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2019(2), pages 5-26.
    6. 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.
    7. Phan, Duc Hong Thi & Mascitelli, Bruno, 2014. "Optimal approach and timeline for IFRS adoption in Vietnam: Perceptions from accounting professionals," Research in Accounting Regulation, Elsevier, vol. 26(2), pages 222-229.
    8. Kothari, S.P. & Ramanna, Karthik & Skinner, Douglas J., 2010. "Implications for GAAP from an analysis of positive research in accounting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 246-286, December.
    9. Dima, Bogdan & Dima(Cristea), Stefana Maria & Moldovan, Nicoleta & Pirtea, Marilen Gabriel, 2010. "National legislative systems and foreign standards and regulations: The case of International Financial Reporting Standards adoption," MPRA Paper 27172, University Library of Munich, Germany.
    10. Akisik, Orhan & Gal, Graham, 2023. "IFRS, financial development and income inequality: An empirical study using mediation analysis," Economic Systems, Elsevier, vol. 47(2).
    11. Pius V.C. Okoye & Jane F.N. Okoye & Raymond A. Ezejiofor, 2014. "Impact of the IFRS Adoption on Stock Market Movement in Nigerian Corporate Organization," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(9), pages 202-218, September.
    12. Rahman, Asheq R., 2016. "Discussion on “IFRS Adoption, Extent of Disclosure, and Perceived Corruption: A Cross-country Study”," The International Journal of Accounting, Elsevier, vol. 51(3), pages 379-381.
    13. Alon, Anna & Dwyer, Peggy D., 2014. "Early Adoption of IFRS as a Strategic Response to Transnational and Local Influences," The International Journal of Accounting, Elsevier, vol. 49(3), pages 348-370.
    14. El-Helaly, Moataz & Ntim, Collins G. & Al-Gazzar, Manar, 2020. "Diffusion theory, national corruption and IFRS adoption around the world," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 38(C).
    15. 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.
    16. Vera Cherepanova, 2017. "A Case for International Financial Reporting Standard on Sustainability: A Critical Perspective," Journal of Management and Sustainability, Canadian Center of Science and Education, vol. 7(2), pages 78-87, June.
    17. Abdullah AL-Mutairi & Kamal Naser & Nabi Al-Duwaila, 2017. "Students' Attitudes towards the Adoption of International Financial Reporting Standards (IFRS) in Kuwait," Asian Social Science, Canadian Center of Science and Education, vol. 13(5), pages 1-85, May.
    18. Akisik, Orhan & Gal, Graham & Mangaliso, Mzamo P., 2020. "IFRS, FDI, economic growth and human development: The experience of Anglophone and Francophone African countries," Emerging Markets Review, Elsevier, vol. 45(C).
    19. David Procházka, 2015. "Is a Full International Accounting Convergence Desirable? [Je žádoucí úplná konvergence účetního výkaznictví?]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2015(3), pages 7-23.
    20. 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.
    21. Glavan Roxana Florina, 2019. "Consequences And Motivations Of Adopting Ifrs: Perceptions Regarding Institutional Factors," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 5, pages 155-161, October.
    22. Devrimi Kaya & Maximilian Koch, 2015. "Countries' adoption of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) - early empirical evidence," Accounting and Business Research, Taylor & Francis Journals, vol. 45(1), pages 93-120, January.
    23. Krishnan, Sarada R., 2018. "Influence of transnational economic alliances on the IFRS convergence decision in India—Institutional perspectives," Accounting forum, Elsevier, vol. 42(4), pages 309-327.
    24. Ghouma Ghouma & Hamdi Becha & Maha Kalai & Kamel Helali & Myriam Ertz, 2023. "Do IFRS Disclosure Requirements Reduce the Cost of Equity Capital? Evidence from European Firms," JRFM, MDPI, vol. 16(8), pages 1-19, August.

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