The effect of the adoption of international financial reporting standards on capital market integration in the Gulf cooperation сouncil сountries

Abstract

This paper examines the effect of the adoption of International Financial Reporting Standards on the integration of capital market in the Gulf Cooperation Council countries. First, it uses the correlation matrix of the stock market index returns for the insurance sector from 2007 to 2013 as a proxy for the national stock market index return. Then, the causal nexus among financial variables has been investigated by employing cointegration analysis. The study finds that the adoption of IFRS by GCC stock markets has no significant impact on the integration of the capital market. Rather, the results show that the relation among these markets are mostly representing world trend toward more integration as well as the possible impact of the nature of their economy. This could be due to other institutional elements which might have some influence on the magnitude of the role of accounting standards in capital markets. Thus regulators in GCC countries should consider the interplay between accounting standards and market institutional elements in order to enhance their capital market integration.