Working Paper | HBS Working Paper Series | 2009

Why Do Countries Adopt International Financial Reporting Standards?

by Karthik Ramanna and Ewa Sletten


In a sample of 102 non-European Union countries, we study variations in the decision to adopt International Financial Reporting Standards (IFRS). There is evidence that more powerful countries are less likely to adopt IFRS, consistent with more powerful countries being less willing to surrender standard-setting authority to an international body. There is also evidence that the likelihood of IFRS adoption at first increases and then decreases in the quality of countries' domestic governance institutions, consistent with IFRS being adopted when governments are capable of timely decision making and when the opportunity and switching cost of domestic standards are relatively low. We do not find evidence that levels of and expected changes in foreign trade and investment flows in a country affect its adoption decision: thus, we cannot confirm that IFRS lowers information costs in more globalized economies. Consistent with the presence of network effects in IFRS adoption, we find that a country is more likely to adopt IFRS if other countries in its geographical region are IFRS adopters.

Keywords: Financial Reporting; International Accounting; Globalized Economies and Regions; Network Effects; Standards; Adoption;


Ramanna, Karthik, and Ewa Sletten. "Why Do Countries Adopt International Financial Reporting Standards?" Harvard Business School Working Paper, No. 09-102, March 2009.