Convergence of Accounting Standards and Foreign Direct Investment
54 Pages Posted: 6 Nov 2010 Last revised: 15 May 2014
Date Written: November 5, 2010
Abstract
Since the development of the eclectic paradigm by Dunning (1977; 1988; 1993), many studies have investigated different forms of location advantages that attract foreign direct investment (FDI). In this study, we consider accounting standards as a component of the institutional infrastructure of a location and hypothesize that the convergence of domestic and International Financial Reporting Standards (IFRS) promotes FDI as it reduces information processing costs for foreign investors. We also hypothesize that the effect of reduced information costs is stronger for partner countries whose accounting systems showed greater pre-convergence differences because they magnify the facilitating role of accounting standard convergence for FDI. Using bilateral FDI data from 30 OECD countries between 2000 and 2005, we find evidence generally consistent with these hypotheses.
Keywords: IFRS, FDI, OECD
JEL Classification: M41
Suggested Citation: Suggested Citation
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