IFRS adoption and the impact on foreign direct investment – evidence from Central and Eastern European countries

Abstract

The adoption of International Financial Reporting Standards (IFRS) is supposed to improve transparency by increasing the quality and the comparability of financial information. Qualitative financial information plays an important role in describing the position of a company and its financial performance, which are relevant to the investors in the decision-making process. At European level, the appearance of Regulation no.1606/2002 stimulated the implementation process by requiring to each listed company from European capital markets to prepare consolidated financial statements in accordance with IFRS for each fiscal year beginning with 1 st January 2005. The main purpose of this research is to investigate the link between foreign direct investment (FDI) in 4 countries from Central and Eastern Europe and the IFRS adoption. The FDI inflows are a key factor in the economic development of a country due to their long term commitment in the business of the host country. In the present study, net inflows of FDI were analyzed in the period of 1990-2020 based on the data collected from the World Bank website. Even if we cannot draw a direct line between IFRS implementation and the increase of FDI, we cannot fail to notice that in the years when there have been changes in the legislation on convergence to IFRS there have been significant increases in the attracted FDI.