Global Financial Reporting Standards and Cross Border Investment Facilitation

Abstract

This research investigates the nuanced relationship between the adoption of International Financial Reporting Standards (IFRS) and the facilitation of cross-border
investment flows, with a specific focus on emerging market economies. While prior literature has predominantly examined the direct effects of IFRS adoption on foreign direct
investment (FDI) volumes, this study introduces a novel, multi-dimensional framework
that deconstructs the concept of ’facilitation’ into three distinct channels: information
symmetry enhancement, regulatory harmonization efficiency, and investor confidence
signaling. We employ a hybrid methodological approach, combining a longitudinal
panel data analysis of 45 emerging economies from 1995 to 2004 with a qualitative
content analysis of investment committee reports and analyst briefings. This dualmethod design allows us to move beyond aggregate capital flows and examine the
mechanisms through which reporting standards alter the investment decision-making
calculus. Our findings reveal a non-linear and conditional relationship. Full IFRS
adoption is associated with a significant increase in cross-border portfolio investment,
particularly from institutional investors, but shows a weaker, often delayed, correlation with greenfield FDI. Crucially, we identify that the ’facilitation’ effect is heavily
contingent on the pre-existing institutional infrastructure, including the strength of
audit regimes and enforcement mechanisms. The study’s primary contribution is the
’Transparency-Enforcement Nexus’ model, which posits that the benefits of global reporting standards for cross-border investment are fully realized only when high-quality
accounting transparency is coupled with robust local enforcement. This research challenges the simplistic ’adoption leads to investment’ narrative and provides a more
granular, mechanism-based understanding critical for policymakers in emerging markets