An Empirical Analysis of International Accounting Standards, Equity Markets, and Economic Growth in Developing Countries

Abstract

The International Accounting Standards Committee receives widespread support for its efforts to 'harmonize' international accounting. International Accounting Standards (IASs) are, however, controversial, particularly in the context of developing countries. The authors report the results of an exploratory study empirically examining the relationships between the adoption of IASs, equity market development, and economic growth in developing countries with equity markets. They analyzed 27 developing countries by means of a crossnational sociological research design and partial least squares. The results indicate no major association between developing countries' equity market development and economic growth due to adoption of IASs. Questions for future research are proposed.

IFRS Adoption and Enforcement as Antecedents of Economic Growth

“…In terms of the impact of IAS adoption on the economic growth, one study reported a positive impact (Larson, 1993), another reported a small negative impact (Larson & Kenny, 1995), and the other study reported no impact (Woolley, 1998). the successor of IASC.…”

“…Larson and Kenny (1995) suggest that mere adoption of IFRS does not lead to greater equity market development and economic growth. Enforcement plays an important role in this regard.…”

“…Studies conducted when the predecessors of the IFRS-the International Accounting Standards (IAS)-were in place, do not provide conclusive evidence. These early studies investigated the impact of IAS adoption on countries from a particular region (Africa (Larson, 1993) and Asia (Woolley, 1998)), or from a particular level of economic development (developing countries (Larson & Kenny, 1995)). Some studies found that the adoption of IAS did not promote the economic growth (Larson & Kenny 1995;Woolley, 1998), whereas one study found that IAS adaption promoted economic growth (Larson, 1993).…”

“…The author found no significant differences in the economic growth rates of IAS adoptee and non-adoptee countries. Larson and Kenny (1995) conducted a study including 27 developing countries that have equity markets to determine the effects of IAS adoption on equity market development and economic growth. They found a small negative relationship between IAS adoption and economic growth rates in the developing countries studied.…”

Financial Disclosure and International Capital Mobility in Latin America

“…However, at least on empirical grounds, the adoption of International Accounting Standards [IASs] is a controversial issue particularly in the context of developing countries. For instance, Larson and Kenny (1995) report the results of an exploratory study examining the relationships between the adoption of International Accounting Standards [IASs], equity market development and economic growth in developing countries with equity markets. They analyzed 27 developing countries by means of a cross-country research design and found no major association between developing countries' equity market development and economic growth owing to the adoption of IASs.…”