IFRS Adoption and Foreign Investment in Africa: Institutions Also Matter

Abstract

The main argument of this study is that the rising global agitation for developing countries, including those in Africa, to adopt IFRS for foreign investment attractiveness is confronted by institutional framework of these countries. In essence, we ask an important question, what effect does IFRS adoption have on FDI when considering the institutional ‘plague’ – corruption – in African countries? 42 African countries were used as sample for the period 2001-2012. Two estimation approach were applied – the feasible generalised least square technique and the system GMM. The result reveals that African countries will benefit more from IFRS by improving their institutional framework, than having a static institutional framework and then adopting IFRS. This result is robust in diverse respect.