IFRS, Foreign Investment, and Prevailing Institutional Structure in Africa

Abstract

We revisit the effectiveness of IFRS adoption for FDI attractiveness by considering the adopting country's institutional structure. Attention was on the extent of corruption control (as a measure of institutional structure). Data was tested on 42 African countries for the period 2001-2012. Using the Panel Corrected Standard Error (PSCE) estimation technique, our result suggest that the effect of IFRS adoption on foreign investment differs based on the level of corruption control instituted in the sample countries. When the variable – IFRS adoption, was tested for the sample with corruption control below the median value, the coefficient was either negative or insignificant. However, the opposite was seen for the category of countries with corruption control above the median value. This result was robust to the inclusion of alternative measures of corruption, foreign investment, and control of global financial crisis and legal origin of the country.