The Impact of IFRS Adoption on Foreign Direct Investment FDI and Stock Market Development: The Case of Saudi Arabia

Abstract

ABSTRACT This study aims to determine whether the adoption of International Financial Reporting Standards (IFRS) in Saudi Arabia results in greater Foreign Direct Investment (FDI) inflows and a more developed stock market. There has been little research on the adoption of IFRS, especially in developing countries. Adoption of the IFRS is claimed to promote developing nations by providing a low-cost alternative for improving the quality of financial reports in order to encourage foreign investments and support the growth of capital markets. By investigating country-level data for the period from 2006-2020, this research utilized the Ordinary Least Squares (OLS) technique to examine the research questions. These questions are, does IFRS adoption have a positive influence on FDI in Saudi Arabia, and does the implementation of IFRS assist the development of the Saudi stock market. Interestingly, the findings of this study showed no evidence of the positive effects of the IFRS transition on FDI and the capital market development in Saudi Arabia. Some possible implications are addressed at the end of the study.