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

Abstract

The adoption of IFRS enhanced the transparency of stewardship reporting and thus improved the investment ability of countries affected. The study examined the moderating effect of institutional quality on the relationship between international financial reporting standards and foreign direct investment in Nigeria from 2012 to 2018 Institutional quality was measured by political stability and control of corruption while foreign direct investment was measured by foreign investment on equity, foreign portfolio investment on money market and foreign direct investment on trade credits. Ex-post facto research design was adopted and the Generalised Methods of Moments (GMM) was used for the analysis. The study found that with the aid of institutional quality, the IFRS has a significant effect on investment inflows in Nigeria. The study concludes that international financial reporting standards has a significant influence on foreign direct investment with strengthened institution and anticorruption efforts in Nigeria. Therefore, the study recommends that the Nigerian government should strengthen its institutional mechanisms to fully benefit from the adoption of IFRS and drive inflows of foreign direct investment.