Assessing variations in foreign direct investments under international financial reporting standards (IFRS) adoption, macro-socioeconomic developments and credit ratings

Abstract

The main purpose of this paper is to investigate the impact of an endogenous relationship between international financial reporting standards (IFRS) and sovereign credit ratings on the factors that determine foreign direct investments, by using an instrumental variable panel data framework. The results show that the adoption of IFRS by developed economies is interpreted by credit rating agencies as a positive sign that the firms will provide more transparent financial reports. In addition, the authors find that the consideration of the endogenous relationship between IFRS and credit ratings for developed economies highlights the importance of some variables that was not evident previously such as the degree of corruption and the educational level. Finally, the authors suggest that foreign direct investments are more easily attracted when one considers a joint factor which captures people’s perceptions about the ability of the government to implement policy and regulations that promote the development of public and private sector. Keywords: credit ratings, IFRS, FDI determinants. JEL Classification: C23, C26, M41, E51

Foreign Direct Investment in GCC Countries: The Essential Influence of Governance and the Adoption of IFRS

“…We confirm a strong significant and positive effect between IFRS and FDI, obtained by the three models that we have employed. This result is consistent with the previous research (Márquez-Ramos 2011; Gordon et al 2012;Chen et al 2014;Daskalopoulos et al 2016).…”

“…Many studies have recognized the significant positive effect of IFRS on increasing FDI inflows across different economic and geographical peripheries (Márquez-Ramos 2011; Gordon et al 2012;Chen et al 2014;Daskalopoulos et al 2016;Kainth and Wahlstrøm 2021). However, the effect of IFRS adoption is dependent on the economic status of each country.…”

Financial Reporting Standards Adoption and Foreign Direct Investment in Nigeria as Moderated by Institutional Quality

“…The finding from this study agrees with the findings from the study of Daskalopoulos, Evgenidis, Tsagkanos and Siriopoulos (2016), Adetula, Nwobu and Owolabi (2014), but disagrees with the findings of Akpomi and Nnadi (2017).…”

Determining Factors of FDI Flows to Selected Caribbean Countries

“…There are a vast number of theoretical and empirical studies on the factors that determine foreign direct investment (FDI) in a country (for some key examples, see Billington 1999;Nunnenkamp 2001;Wolff 2007;Faeth 2008;Türkcan et al 2008;Kolstad and Villanger 2008;Mengistu and Adhikary 2011;Oladipo 2013;Taylor et al 2013;Aziz and Makkawi 2012;Bannaga et al 2013;Zeshan and Talat 2014;Corcoran and Gillanders 2015;Henry et al 2014;Williams 2015;Phung 2016;Khramov 2016;Mahmoodi and Mahmoodi 2016;Daskalopoulos et al 2016;Mamingi and Martin 2018;Sabir et al 2019;Siriopoulos et al 2021). An FDI is defined as "an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate)" (World Investment Report 2007, p. 245).…”