Effect of IFRS Adoption and Institutional Quality in FDI Attraction in MENA Countries

Abstract

This study investigates how the adoption of International Financial Reporting Standards (IFRS) affects FDI Attraction in MENA economies and investigates the moderating role that institutional quality plays in the relationship between IFRS accreditation and FDI attraction. Using panel data from 22 MENA countries from the period 2002 to 2022, the study presents and discusses regressions Diagnostics: The study reviews the empirical results of the variables using the panel Ordinary Least Squares (OLS), DOLS, and FMOLS and employs the generalized methods of moment (GMM) and a bias-corrected Least Square Dummy Variable (LSDVC). The study found that IFRS adoption is positively related to increasing FDI flows, but there are other factors that must be taken into consideration in conjunction with the adoption of IFRS, including institutional quality indicators. This study enhances knowledge of the IFRS-FDI nexus by analyzing the influence of institutional quality on the relationship. It offers a deeper understanding of how global accounting standards influence economic outcomes across various governance contexts, providing fresh insights into policy and economic growth. The results of this study indicate to decision makers that adopting IFRS should not be done as a stand-alone strategy aimed at increasing FDI flows. Rather, it should be taken as a specific measure for institutional reforms aimed at improving institutional quality levels. MENA countries that have adopted or are planning to adopt International Financial Reporting Standards (IFRS) should focus on implementing comprehensive institutional reforms to enhance the effectiveness of the adoption decision.