Economic growth in European Union: does IFRS mandatory adoption matter?

Abstract

The purpose of this paper is to examine the impact of International Financial Reporting Standards (IFRS) adoption on economic growth. Using data from 2005–2014, the study examined whether the mandatory adoption of IFRS increases economic growth synchronicity in the European Union (EU) context. The study utilizes a sample of 28 countries containing 10-year observations in the EU market where IFRS have been adopted since 2005. The empirical model, relating to economic growth synchronicity with the adoption of IFRS, and other country-specific control variables were analyzed using the dynamic panel data technique. Different specifications of the model results showed that IFRS adoption improves the economic growth and that IFRS adoption matters for developing economies than developed ones. It is, therefore, recommended that authorities in Europe should try to enforce the adoption and implementation of IFRS, especially among the developing economies. The paper’s investigation of the impact of IFRS on economic growth expands the extant literature. Studies that dealt with IFRS impacts mostly fixate on the accounting benefits of IFRS adoption to institutional investors and fail to capture the commensurate impact of IFRS adoption on macroeconomic indicators. This little attention is because prior researchers suggest IFRS adoption is important in shaping financial reporting characteristics which provide useful information to the prime users of financial reports. Also, separating the study’s countries into developed and developing countries would help delineate the impact of IFRS adoption on economic growth based on the stage of development.