International Financial Reporting Standard, Trade And Foreign Direct Investment In Sub-Sahara African Countries

ABSTRACT

Since the promulgation of IFRS as a result of the metamorphosis of the International

Accounting Standard Board from the International Accounting Standard Committee in

2001, improved global capital flow and trade were identified as some of the outcomes

from using IFRS for global financial reporting practice. Due to the fact that IFRS includes

more realistic measure of accounting numbers and promotes better disclosure of

accounting transactions, it is adjudged as a better form of financial reporting practice.

Thus it reduces information asymmetry between preparers and users of financial information

and promotes better disclosure and lowers cost of monitoring of subsidiaries and

information barriers to cross border investments and trade. The rising global campaign

for developing countries, including those in Africa, to adopt IFRS, still requires further

examination as to its impact. More so, Africa is confronted by poor institutional framework

and accounting infrastructure, and based on this, the consequent effect of IFRS

adoption on trade and investment require empirical clarification. In essence, three important

questions were asked: (i) to what extent has IFRS adoption enhanced trade flow

of selected African countries? (ii) How has IFRS adoption impacted on the volume of

FDI inflow to selected African countries? (iii) to what extent has the development of the

accounting infrastructure in the selected African countries’ affected the influence of the

adoption of IFRS on trade and FDI inflow. In answering the research questions, a panel

data, consisting of 48 African countries were gathered and for the period 2002 – 2014.

The econometric model were sourced from different database including the World

Bank’s World Development Indicator, the United Nations Conference on Trade and Development

Statistics and the Price Water House Coopers data on the extent of IFRS

adoption around the world. The data were estimated using three approaches: the Ordinary

Least Square regression, the Random Effect approach and the system GMM. The

three estimation methods are deemed important considering their merits and weaknesses;

thus, a multiplicity of methods will help for sensitivity checks. The key results

from the study include that African countries will benefit more from IFRS by improving their institutional framework and more so through the development of accounting infrastructure.