Financial Reporting Standards and Their Role in Global Capital Market Integration

Abstract

This research presents a novel computational framework for analyzing the complex, non-linear relationships between financial reporting standardization and global capital market integration—a domain traditionally dominated by qualitative and econometric approaches. We introduce the Financial Reporting
Integration Network (FRIN) model, which conceptualizes accounting standards as nodes in a dynamic,
multi-layered network where capital flows, regulatory alignment, and information asymmetry operate as
interdependent edge weights. Unlike prior studies focusing on binary adoption metrics, our methodology employs a temporal graph convolutional network (TGCN) architecture to capture how incremental
convergence in reporting practices—even absent full IFRS adoption—facilitates cross-border investment
and reduces home bias. We train our model on a unique, hand-collected dataset spanning 2005–2023,
comprising granular disclosures from over 12,000 firms across 47 jurisdictions, mapped to capital flow
data from the IMF’s Coordinated Portfolio Investment Survey. Our results reveal three original findings: first, that the ’network centrality’ of a jurisdiction’s reporting practices—a measure of its stylistic
and substantive proximity to multiple global peers—is a stronger predictor of inbound investment than
mere compliance status. Second, we identify a non-linear threshold effect, where beyond a critical mass
of approximately 70% reporting practice alignment, integration benefits accelerate disproportionately.
Third, we demonstrate that machine-readable taxonomy alignment (e.g., XBRL tagging consistency)
has emerged as a significant, previously underappreciated driver of automated, algorithm-driven crossborder capital allocation. The study concludes that global integration is less a function of monolithic
standard adoption and more a process of complex network formation, where computational relational
analysis offers superior explanatory power. This reframing has profound implications for regulators and
standard-setters, suggesting that fostering interoperable reporting ecosystems may be more impactful
than pursuing uniform adoption.