Convergence of Accounting Standards and Foreign Direct Investment

54 Pages Posted: 6 Nov 2010 Last revised: 15 May 2014

Yuan Ding

China Europe International Business School (CEIBS)

Charles J. P. Chen

China Europe International Business School (CEIBS)

Bin Xu

China Europe International Business School

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

Ding, Yuan and Chen, Charles J. P. and Xu, Bin, Convergence of Accounting Standards and Foreign Direct Investment (November 5, 2010). Finance and Corporate Governance Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1703549 or http://dx.doi.org/10.2139/ssrn.1703549

Yuan Ding (Contact Author)

China Europe International Business School (CEIBS) ( email )

699, Hongfeng Road
Shanghai 201206, Shanghai 201206
China

Charles J. P. Chen

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Bin Xu

China Europe International Business School ( email )

699 Hongfeng Road
Shanghai 201206
China

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