THE RELATIVE SUCCESS OF IFRS ADOPTED AFRICAN COUNTRIES  TO ATTRACT FOREIGN INVESTMENT

Merwe OBERHOLZER; Matthew Olubayo OMOTOSO; Danie SCHUTTE Danie SCHUTTE

doi:10.2478/subboec-2022-0004

Authors

Merwe OBERHOLZER Address Private Bag X6001, North-West University, Potchefstroom South Africa, 2520, E-mail: merwe.oberholzer@nwu.ac.za
Matthew Olubayo OMOTOSO North-West University, South Africa
Danie SCHUTTE Danie SCHUTTE North-West University, South Africa

DOI:

https://doi.org/10.2478/subboec-2022-0004

Keywords:

International Financial Reporting Standards (IFRS), foreign direct investment (FDI), foreign portfolio investment (FPI), data envelopment analysis (DEA), institutional isomorphism

Abstract

Within the context that the adoption of International Financial Reporting Standards (IFRS) can be linked to institutional isomorphism, the purpose of the study was to determine how successful IFRS-adopted African countries are to convert governance and economic factors into foreign direct investment (FDI) and foreign portfolio investment (FPI). Data envelopment analysis (DEA) was used to develop two models to calculate the technical efficiency (TE) for 16 African countries that adopted IFRS (2014-2019). The first model considered how multiple economic factors as input variables are converted into FDI and FPI, while similarly, the second model considered governance factors as input variables.

JEL Classification: C61; F18; M41

References

Ahmed, S., Zlate, A. (2014) Capital flows to emerging market economies: a brave new world?, Journal of International Money and Finance, 48, 221-248.

Aldemir, C., Uysal, T.U. (2017) Public accounting reform from institutional theory perspectives: case of Turkey. In: Gokten, S. (Ed.), Accounting and Corporate Reporting: today and tomorrow. National and University Library in Zagreb, Croatia, pp. 277-293.

Alvandi, M., Fazli, S., Hashemi Siavoshani, A. (2013) Combination value investing and momentum investing to stock selection using data envelopment analysis, International Research Journal of Applied and Basic Sciences, 4 (3), 741-746.

Amaya, C.A., Rowland, P. (2004) Determinants of investment flows into emerging markets, Borradores de Economía; 313, available at: http://repositorio.banrep.gov.co/bitstream/handle/20.500.12134/5331/BORRADOR%20313.pdf?sequence=1 (accessed 15 November 2017).

Amiram, D. (2012) Financial information globalization & foreign investment decisions, Journal of International Accounting Research, 11 (2), 57-81.

Anderson, T. (1996) A data envelopment analysis (DEA) homepage, available at http://www.emp.pdx.edu.dea/homedea.html/ (accessed 12 February 2014).

Asfaw, H. (2015) Trade policy and economic growth in Sub-Saharan Africa: a panel data approach, American Journal of Trade and Policy, 2 (1), 7-14.

Avkiran, N. (1999) An application reference for data envelopment analysis in branch banking: helping the novice researcher, International Journal of Bank Marketing, 17 (5), 206-220.

Avkiran, N.K. (2011) Association of DEA super-efficiency estimates with financial ratios: investigating the case for Chinese banks, Omega, 39 (3), 323-334.

Ball, R. (2016) IFRS – 10 years later, Accounting and Business Research, 46 (5), 545-571.

Banker, R.D., Charnes, A., Cooper, W.W. (1984) Some models for estimating technical and scale efficiencies in data envelopment analysis, Management Science, 30 (9), 1078-1092.

Ben-Othman, H., Kossentini, A. (2015) IFRS adoption strategies and theories of economic development: effects on the development of emerging stock markets, Journal of Accounting in Emerging Economies, 5 (1), 70-121.

Boolaky, P. K., Tawiah, V., Soobaroyen, T. (2020) Why do African countries adopt IFRS? An Institutional Perspective, The International Journal of Accounting, 55 (01), 2050005.

Brignall, S., Modell, S. (2000) An institutional perspective on performance measurement and management in the ‘new public sector, Management Accounting Research, 11 (3), 281-306.

Broadbent, J., Jacobs, K., Laughlin, R. (2001) Organisational resistance strategies to unwanted accounting and finance changes: the case of general medical practice in the UK, Accounting, Auditing and Accountability Journal, 14 (5), 565-586.

Bughin, J., Chui, M. (2013) Evolution of the networked enterprise: McKinsey global survey results, McKinsey Quarterly, 29(Spring), available at: https://www.nextlearning.nl/wp-content/uploads/sites/11/2015/02/McKinsey-on-Impact-social-technologies.pdf (accessed 25 May 2017).

Branken, M.M. (2018) Assessing the efficiency of South African medium-sized banks, North-West University, Potchefstroom, South Africa (Dissertation – MComm) available at: http://repository.nwu.ac.za/handle/10394/33114 (accessed 10 May 2021).

Cairns, D., Massoudi, D., Taplin, R., Tarca, A. (2011) IFRS fair value measurement and accounting policy choice in the United Kingdom and Australia, The British Accounting Review, 43 (1), 1-21.

Charnes, A., Cooper, W.W., Rhodes, E. (1978) Measuring efficiency of decision-making units, European Journal of Operations Research, 2, 429-444.

Chen, C.J., Ding, Y., Xu, B. (2014) Convergence of accounting standards and foreign direct investment, The International Journal of Accounting, 49 (1), 53-86.

Cook, W. D., Tone, K., Zhu, J. (2014) Data envelopment analysis: prior to choosing a model, Omega, 44, 1-4.

Deegan, C. (2013) Financial accounting theory, McGraw-Hill, North Ryde, Australia.

Dillard, J.F., Rigsby, J.T., Goodman, C. (2004) The making and remaking of organization context: duality and the institutionalization process, Accounting, Auditing and Accountability Journal, 17 (4), 506-542.

DiMaggio, P., Powell, W.W. (1983) The iron cage revisited: collective rationality and institutional isomorphism in organizational fields, American Sociological Review, 48 (2), 147-160.

Dupasquier, C., Osakwe, P.N. (2006) Foreign direct investment in Africa: performance, challenges, and responsibilities, Journal of Asian Economics, 17 (2), 241-260.

Efobi, U. (2017) International financial reporting standard, trade and foreign direct investment in Sub-Sahara African countries. Covenant University, Ota, Nigeria (Thesis - PhD) available at: http://eprints.covenantuniversity.edu.ng/9524/#.YJkPbnduKoA (accessed 10 May 2021).

Efobi, U., Iyoha, F.O., Mukoro, D. (2014b) IFRS adoption and foreign investment in Africa: institutions also matter, available at: http://dx.doi.org/10.2139/ssrn.2492235 (accessed 15 June 2017).

Efobi, U., Nnadi, M., Odebiyi, J., Beecroft, I. (2014a) Do the rules attract the money? Implication of IFRS adoption on foreign direct investment, available at: www.ssrn.com/abstract=2460967 (accessed 20 January 2018).

Farrell, M.J. (1957) The measurement of productive efficiency, Journal of the Royal Statistical Society, 120 (3), 253-290.

Fernando, S., Lawrence, S. (2014) A theoretical framework for CSR practices: integrating legitimacy theory, stakeholder theory and institutional theory, Journal of Theoretical Accounting Research, 10 (1), 149-178.

Fogarty, T.J. (1996) The imagery and reality of peer review in the US: insights from institutional theory, Accounting, Organizations and Society, 21 (2-3), 243-267.

Friedland, R., Alford, R.R (1991) Bringing Society back in: symbols, practises, and institutional contradictions. In: Powell, W.W., DiMaggio, P.J. (Eds.), The New Institutionalism in Organizational Analysis, University of Chicago Press, Chicago, pp. 232-267.

Ghosh, M.A.R., Ostry, M.J.D., Qureshi, M.S. (2017) Managing the tide: how do emerging markets respond to capital flows?, IMF Working Paper No. 17/69, International Monetary Fund, Washington, DC, 12 May.

Gillis, P.L. (2011) The big four in China: hegemony and counter-hegemony in the development of the accounting profession in China. Macquarie University, Sydney, Australia (Thesis – PhD) available at: https://scholar.google.com/scholar?q=gillis+the+big+four+in+china+hegemony&inst=12172072488891418045

Gordon, L.A., Loeb, M.P., Zhu, W. (2012) The impact of IFRS adoption on foreign direct investment, Journal of Accounting and Public Policy, 31 (4), 374-398.

Gumus, G.K., Duru, A., Gungor, B. (2013) The relationship between foreign portfolio investment and macroeconomic variables, European Scientific Journal, 9 (34), 209-226.

Hong, H.A., Hung, M., Lobo, G.J. (2014) The impact of mandatory IFRS adoption on IPOs in global capital markets, The Accounting Review, 89 (4), 1365-1397.

IFRS (International Financial Reporting Standards). (2018) Who uses IFRS Standards?, available at: www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/#development (accessed 10 May 2021).

IMF (International Monetory fund). (2021) Balance of payments and international investment position statistics (BOP/IIP): international invetment by country, available at: https://data.imf.org/?sk=7A51304B-6426-40C0-83DD-CA473CA1FD52&sId=1542633711584 (accessed 29 January 2021).

Iredele, O.O., Tankiso, M., Adelowotan, M.O. (2020) The influence of institutional isomorphism and organisational factors on environmental management accounting practices of listed Nigerian and South African firms, South African Journal of Accounting Research, 34 (3), 183-204.

Khayat, S. (2016) Developing countries’ foreign direct investment and portfolio investment. University of Leicester, Leicester, UK (Thesis - PhD) available at: https://leicester.figshare.com/articles/thesis/Developing_countries_foreign_direct_investment_and_portfolio_investment/10121243/1 (accessed 10 May 2021).

Makoni, P.L., Marozva, G. (2018) The nexus between foreign portfolio investment and financial market development: evidence from Mauritius, Academy of Strategic Management Journal, 17 (5), 1-14.

Márquez-Ramos, L. (2011) European accounting harmonization: consequences of IFRS adoption on trade in goods and foreign direct investments, Emerging Markets Finance and Trade, 47 (4), 42-57.

Meyer, M.W., Brown, M.C. (1977) The process of bureaucratization, American Journal of Sociology, 83 (2), 364-385.

Ng, C. (2015) Assessing the association between International Financial Reporting Standards (IFRS) and foreign direct investment (FDI): a replication and extension study utilizing econometric analysis. Wilmington University, Wilmington, USA (Dissertation - PhD) available at: https://search.proquest.com/openview/553d8275a7f804d8788810dac083e527/1?pq-origsite=gscholar&cbl=18750&diss=y (accessed 10 May 2021).

Nnadi, M., Soobaroyen, T. (2015) International financial reporting standards and foreign direct investment: the case of Africa, Advances in Accounting, 31 (2), 228-238.

Nobes, C., Parker, R.B., Parker, R.H. (2008) Comparative international accounting, Pearson, London.

OECD (Organisation for Economic Co-operation and Development). (2013) Foreign direct investment (FDI) statistics): 2013 OECD data, analysis and forecasts, available at: http://www.oecd.org/corporate/mne/statistics.html (accessed 26 May 2017).

Phan, D. (2014) What factors are perceived to influence consideration of IFRS adoption by Vietnamese policy makers?, Journal of Contemporary Issues in Business and Government, 20 (1), 27-40.

Prockazka, D. (2012) IFRS adoption index: a tool for the measurement of accounting harmonization, available at: http://www.wseas.us/e-library/conferences/pdf (accessed 17 August 2017).

Ramanna, K., Sletten, E. (2014) Network effects in countries' adoption of IFRS, The Accounting Review, 89 (4), 1517-1543.

Rodrigues, L.L., Craig, R. (2007) Assessing international accounting harmonization using hegelian dialectic, isomorphism and foucault, Critical Perspectives on Accounting, 18 (6), 739-757.

Rollins, T.P., Bremser, W.G. (1997) The SEC's enforcement actions against auditors: an auditor reputation and institutional theory perspective, Critical Perspectives on Accounting, 8 (3), 191-206.

TheGlobalEconomy.com. (2021) Business and economic data for 200 countries, available at: https://www.theglobaleconomy.com/download-data.php (accessed 15 January 2021).

Vidal-García, J., Vidal, M., Boubaker, S., Uddin, G.S. (2016) The short-term persistence of international mutual fund performance, Economic Modelling, 52, 926-938.

World Bank. (2021) Databank: World development indicators, available at: https://databank.worldbank.org/source/world-development-indicators (accessed 15 January 2021).

Zeghal, D., Mhedhbi, K. (2006) An analysis of the factors affecting the adoption of international accounting standards by developing countries, The International Journal of Accounting, 41 (4), 373-386.

Zhou, H., Yang, Y., Chen, Y., Zhu, J. (2018) Data envelopment analysis application in sustainability: the origins, development and future directions, European Journal of Operational Research, 264 (1), 1-16.

Zhu, J. (2009) Quantitative models for performance evaluation and benchmarking: data envelopment with spreadsheets and DEA Excel Solver, Springer, New York.