The Effect of IFRS on Cross-Border Acquisitions

We examine whether the 2005 mandatory adoption of IFRS leads to an increase in cross-border acquisitions into the adopting countries. We use the exogeneity of a firm’s listing status to identify the effect of IFRS, which enables us to more reliably establish a causal relation between IFRS and foreign investments. The overall evidence suggests that the adoption of IFRS led to a significant increase in cross-border investment into the adopting countries, which is likely to benefit the adopting countries substantially. Consistent with the notion that the economic effects of IFRS are likely to depend on the strength of the local institu tions and regulatory implementation, the increase in foreign investment flow is limited to adopting countries where government ability to implement sound regulations is high. However, there is no evidence that the increase in investment flow is driven by countries that apparently bundled the IFRS adoption with enforcement changes, suggesting that the effect that we document is due to IFRS as opposed to changes in enforcement.

This seminar is organised by the Erasmus Accounting Research Group.