Determinants of adoption of International Financial Reporting Standards in Ugandan micro finance institutions

Abstract

Purpose The purpose of this paper is to report on the results of a study carried out to establish the contribution of board of directors’ effectiveness, intellectual capital (IC) and managerial attitude to the adoption of International Financial Reporting Standards (IFRSs) in microfinance institutions (MFIs). Design/methodology/approach This study is cross-sectional and correlational. Data were collected through a questionnaire survey of 67 MFIs that are members of the Association of Microfinance Institutions of Uganda. The data were analyzed using statistical package for social sciences. Findings Both board of director’s effectiveness and IC positively and significantly contribute to the adoption of IFRSs. Managerial attitude is positively and significantly associated with the adoption of IFRSs, but its explanatory power is subsumed in IC. Originality/value To the authors’ knowledge, this is the first study to investigate the contribution of board of director’s effectiveness, IC and managerial attitude to the adoption of IFRSs in MFIs using evidence from a developing African country like Uganda.

Intellectual capital: mediator of board of directors’ effectiveness and adoption of International Financial Reporting Standards

“…In their study of cross-country determinants of IFRS for SMEs adoption, Damak-Ayadi et al (2020) found that the law enforcement quality, culture, trading networks, economic growth and institutional pressures are positively associated with IFRS adoption for SMEs. In another study, Bananuka et al (2019a) found that intellectual capital and board of directors’ effectiveness have significant associations with adoption of IFRS among MFIs in Uganda. Relatedly, Bananuka et al (2019b) found that audit committee effectiveness, isomorphic forces and managerial attitude significantly contribute to IFRS adoption in Uganda’s MFIs.…”

“…Studies such as Bin-Ghanem and Ariff (2016) and Bananuka et al (2019a) described board of director’s effectiveness as board meetings, board independence, board committees and board size. Frequent board meetings reflects an active board in monitoring management and therefore improving their supervision role (Chen and Rezaee, 2012).…”

“…On the other hand, a questionnaire is powerful in documenting those direct managerial motivations for decisions related to the adoption/usage of IFRS. For those studies that have used a questionnaire, their focus has been at obtaining direct relationships among the study variables and neglected to test for mediations (see Bananuka et al , 2019a). This study therefore uses a questionnaire to obtain those direct managerial motivations for IFRS adoption decisions.…”

“…The contribution made by intellectual capital attributes to adoption of IFRS has been neglected in the literature. Majority of the studies such as those of Bananuka et al (2019a) have examined the contribution of intellectual capital to adoption of IFRS without testing whether the human, structural and relational elements of intellectual capital individually contribute to adoption of IFRS. By intellectual capital, we refer to the sum of all the intangible and knowledge-related resources an organization uses to create value.…”

“…The present study results provide important insights for the academia, practitioners and policymakers. We build on existing literature such as that for Bananuka et al (2019a) by documenting that the specific elements of board of directors effectiveness that are critical to adoption of MFIs are board independence and board meetings. Also, human and structural capital elements of intellectual capital are important for the adoption of IFRS in Uganda’s MFIs.…”