The impact of International Financial Reporting Standards (IFRS) adoption on Foreign Direct Investments (FDI): Evidence from Africa and implications for managers of education

Abstract

Foreign direct investments have been shown by previous studies to promote economic growth and development especially in the emerging markets through human capital development and technology transfer. In this study, adopting the International Financial Reporting Standards (IFRS) is considered a way of attracting FDI, improving comparability in financial reporting, reducing information asymmetries and cost for foreign investors. The effect of regulatory quality is found as an incentive for quality of accounting information and compliance to the IFRS by firms. Using the fixed effect model for the regression and a sample of 48 countries in Africa, we find that adoption of IFRS has a positive effect on the flow of FDIs. We also established that regulatory quality is an incentive for compliance to IFRS standards. The results which are very necessary for managers of education (teachers of accounting education), show that IFRS adoption by African countries will boost the flow of FDIs by increasing comparability. Improving regulatory quality will further strengthen the effect of IFRS adoption on the flow of FDI as it also enhances transparency.