Why do Countries Adopt International Financial Reporting Standards?

48 Pages Posted: 25 Aug 2009

See all articles by Karthik Ramanna

Karthik Ramanna

Harvard Business School; University of Oxford - Blavatnik School of Government

Ewa Sletten

The Ohio State University

Date Written: March 24, 2009


In a sample of 102 non-European Union countries, we study variations in the decision to adopt International Financial Reporting Standards (IFRS). There is evidence that more powerful countries are less likely to adopt IFRS, consistent with more powerful countries being less willing to surrender standard-setting authority to an international body. There is also evidence that the likelihood of IFRS adoption at first increases and then decreases in the quality of countries’ domestic governance institutions, consistent with IFRS being adopted when governments are capable of timely decision making and when the opportunity and switching cost of domestic standards are relatively low. We do not find evidence that levels of and expected changes in foreign trade and investment flows in a country affect its adoption decision: thus, we cannot confirm that IFRS lowers information costs in more globalized economies. Consistent with the presence of network effects in IFRS adoption, we find that a country is more likely to adopt IFRS if its trade partners or countries within in its geographical region are IFRS adopters.

Keywords: IFRS, international accounting, harmonization

JEL Classification: F42, G14, G15

Suggested Citation

Ramanna, Karthik and Sletten, Ewa, Why do Countries Adopt International Financial Reporting Standards? (March 24, 2009). Harvard Business School Accounting & Management Unit Working Paper No. 09-102. Available at SSRN: https://ssrn.com/abstract=1460763 or http://dx.doi.org/10.2139/ssrn.1460763

Karthik Ramanna

Harvard Business School ( email )

Boston, MA 02163
United States

University of Oxford - Blavatnik School of Government ( email )

10 Merton St
Oxford, Oxfordshire OX1 4JJ
United Kingdom

Ewa Sletten (Contact Author)

The Ohio State University ( email )

Fisher Hall
2100 Neil Avenue
Columbus, OH 43210
United States
6142922451 (Phone)

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