International Trade and Finance Association Working Papers 2008
The Effect of IFRS Adoption on Trade and Foreign Direct InvestmentsI acknowledge the financial support of the European Commission Research Training Network INTACCT (Contract MRTN-CT-2006-035850). Financial support from Fundación Caja Castellón-Bancaja and the Spanish Ministry of Science and Technology is grateful acknowledged (P1-1B2005-33, Research Project SEJ2007-67548). I am grateful to Anita Attanasova, Fanya Filipova, Belén Gill de Albornoz and Manuel Illueca for their helpful comments and suggestions that helped to improve this paper. Address for correspondence: Universitat Jaume I, Campus del Riu Sec, 12071 Castellón, Spain. E-mail: lmarquez@eco.uji.es. Tel: 0034 964728616. Download the Paper (PDF format) - August 13, 2008 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing. ABSTRACT: This paper focuses on the importance of accounting harmonisation on foreign activities from a macroeconomic perspective. International Financing Reporting Standards (IFRS) adoption is considered to reduce information costs among countries and is, therefore, an important way to encourage international trade flows and investments. Moreover, heterogeneity in trade and FDI determinants among different European countries (well-established capitalist countries in the “West” and post-communist countries in the “East”) is analysed since transition economies present a lower development of market institutions and, therefore, of financial systems. The effect of IFRS adoption is analysed from a gravity framework. The fixed-effects vector decomposition (FEVD) procedure, recently proposed by Plumper and Troeger (2007), is used to estimate panel data characterised by the presence of time invariant variables, or variables which vary rarely in time. The results provide evidence that benefits exist in terms of trade and FDI when IFRS are adopted. Furthermore, the positive effect of adopting uniform accounting standards on foreign activities in Europe is higher in transition economies. Finally, this effect also differs in countries because of behavioural factors such as unfamiliarity aversion. This paper was presented at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa, Lisbon, Portugal, May 23, 2008. Keywords: IFRS, international trade, FDI, transition countries, FEVD. JEL classification: F40 SUGGESTED CITATION:
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