IFRS adoption and foreign direct investment in Sub-Saharan African countries: Does the levels of Adoption Matter?

Figures & data

Table 2. Unit-Root Test

Variables	Level		First difference		Order of integration
Foreign direct invt. (FDI as %GDP)	0.571***	0.536	−0.205***	−0.204***	I(1)
Log of gross capital formation (lnGCF)	0.675***	0.594	−0.011***	0.015***	I(1)
Log of trade openness (lntrade)	0.665***	0.456***	−0.139***	−0.115***	I(0)
Log of Infra	0.820	0.620	−0.271***	−0.217***	I(1)
Log of human cap. (lnhcap)	0.983	0.512*	−0.017***	−0.0175***	I(1)
INST*	0.809	0.528	−0.019***	0.067***	I(0)

Note: Harris-Tzavalis (1999) unit-root test for each variable is performed. Ho: Panels contain unit roots; Ha: Panels are stationary. INST*, represents the six governance indicators.

Table 1. Definition of Variables and Sources of Data

Variable	Code	Description	Source
Foreign direct investment	FDI	FDI (%GDP)	WB’s WDI
Gross capital formation	GCF	Gross capital formation (%GDP)	IMF’s IFS
Infrastructure	Infra	fixed telephone subscriptions per 100 persons	WB’s WDI
Trade openness	Trade	[Exports + imports]/ GDP as a measure of trade liberalization and globalization	WB’s WDI
Human capital index	HCI	the contributions of health and education to worker productivity(ranges from 0–1)	WB’s WDI
Institutional quality	Insqua	World governance index	WGI
IFRS adoption	IFRS	A dummy variable assigned 1 if a country has fully adopted IFRS and 0 otherwise.	Deloitte, PWC, IASB

Source: Author’s own compilation

Table 3. Panel test of Cointegration

Kao test statistics(Ho: No Cointegration; Ha: all panels are cointegrated)
Modified Dickey-Fuller t-statistics	0.424(0.335)
Dickey-Fuller t—statistics	−2.928***(0.001)
Augmented Dickey-Fuller t—statistics	0.836(0.201)
Unadjusted modified Dickey-Fuller t	−13.280***(0.000)
Unadjusted Dickey-Fuller t	−10.934***(0.000)
Pedroni test statistics (Ho: No Cointegration; Ha: all panels are cointegrated)
Modified variance ratio	−10.500***(0.000)
Modified Phillips-Perron t-statistics	7.177***(0.000)
Phillips-Perron t-statistics	−21.368***(0.000)
Augmented Dickey-Fuller t-statistics	−12.601***(0.000)
Westerlund test statistics(Ho: No Cointegration; Ha: some panels are cointegrated)
Variance ratio statistics	−1.373(0.084)

Note: * significant at 10%, ** significant at 5%, *** significant at 1%. Critical probabilities are in parentheses

Table 4. Regression results for IFRS and FDI

Dependent variable (FDI)	IFRS	IFRS+INST	IFRS2*INST	IFRS2+ INST	Partial
FDI(−1)	0.303*** (0.014)	0.313*** (0.017)	0.255*** (0.12)	0.243*** (0.023)	0.303*** (0.13)
lnGCF	0.171*** (0.012)	0.164*** (0.013)	0.181*** (0.026)	0.263*** (0.033)	0.171*** (0.011)
Lntrade	0.105*** (0.005)	0.105*** (0.005)	0.097*** (0.008)	0.078*** (0.011)	0.104** (0.005)
InINFRA	1.082*** (0.151)	1.054*** (0.162)	1.603*** (0.125)	1.542*** (0.174)	1.082*** (0.150)
HCI	0.301*** (0.099)	0.276** (0.103)	0.395*** (0.084)	0.451*** (0.122)	0.301*** (0.099)
IFRS (full)	−0.634 (4.573)	1.816 (5.279)
IFRS (partial)					0.634 (4.573)
IFRS2			21.866*** (3.429)	25.775*** (6.250)
INST		−2.474 (2.466)		3.649 (4.386)
Constant	−12.216*** (2.225)	−14.680*** (3.396)	−12.867*** (1.656)	−12.669*** (3.250)	−12.850*** (2.847)
Observations	465	465	465	465	465
Number of groups	31	31	31	31	31
Instruments	30	30	30	30	30
F/Wald test	227.85***	210.41	1734.98***	3755.43	227.85***
AR(1): p-value	0.211	0.204	0.230	0.221	0.211
AR(2): p-value	0.242	0.231	0.245	0.217	0.242
Hansen/Sargan Test	0.172	0.160	0.160	0.197	0.172

Note: ***, ** and * are significant levels at 1%, 5%, and 10%, respectively. Standard errors are in parenthesis, Windmeijer (2005) finite sample standard errors for GMM estimate. IFRS2 is the interaction between IFRS and the institutional variables (INST) of the six aggregate indicators. IFRS is a dummy variable assigned 1 if a country has fully adopted IFRS as its national accounting standard and it is mandatory for listed firms and 0 otherwise. Partial is for the sake of reconciliation of results by assigning 1 for partial adopters and 0 for full.

Table 5. The independent effect of institutional variables on FDI

DV (FDI)	COR	RL	RQ	POS	VA	GOE
FDI(−1)	0.305*** (0.016)	0.208*** (0.014)	0.289*** (0.015)	0.323*** (0.019)	0.289*** (0.015)	0.283*** (0.018)
lnGCF	0.090*** (0.024)	0.201*** (0.027)	0.157*** (0.014)	0.078*** (0.027)	0.211*** (0.023)	0.267*** (0.034)
Lntrade	0.082*** (0.008)	0.106*** (0.010)	0.109*** (0.005)	0.139*** (0.007)	0.092*** (0.007)	0.058*** (0.008)
InINFRA	1.065*** (0.157)	1.506*** (0.194)	1.276*** (0.180)	1.559*** (0.250)	1.225*** (0.326)	1.083*** (0.172)
HCI	0.175* (0.097)	0.312*** (0.084)	0.316*** (0.099)	0.259*** (0.086)	0.224*** (0.091)	0.296*** (0.102)
IFRS	−3.638 (4.884)	1.138 (9.819)	1.877 (4.769)	3.846 (5.098)	−3.793 (3.827)	−8.981 (9.849)
COR/RL/RQ/POS/VA/GOE	−7.655*** (1.374)	10.847*** (2.367)	−3.833* (1.958)	−3.782*** (0.970)	1.802 (3.099)	8.459*** (1.198)
Constant	−11.486*** (2.751)	−9.775** (4.554)	−16.133*** (2.974)	−18.310*** (2.926)	−10.210*** (2.148)	−2.635 (4.914)
Observations	465	465	465	465	465	465
Number of groups	31	31	31	31	31	31
Instruments	30	30	30	30	30	30
F/Wald test	241.97***	757.06***	197.04***	1548.69***	201.46***	1742.23***
AR(1): p-value	0.206	0.215	0.211	0.218	0.218	0.210
AR(2): p-value	0.249	0.218	0.239	0.280	0.241	0.215
Hansen/Sargan Test	0.279	0.244	0.276	0.237	0.194	0.372

Note: ***, ** and * are significant levels at 1%, 5% and 10%, respectively. Standard errors are in parenthesis, Windmeijer (2005) finite sample standard errors for GMM estimate.