National Adoption of International Accounting Standards: An Institutional Perspective

• Date: 01 May 2010
• Published date: 01 May 2010
• DOI: http://doi.org/10.1111/j.1467-8683.2010.00798.x
• Author: Robert Pinsker,William Judge,Shaomin Li

National Adoption of International Accounting

Standards: An Institutional Perspectivecorg_798161..174

William Judge,* Shaomin Li, and Robert Pinsker

ABSTRACT

Manuscript Type: Empirical

Research Question/Issue: Effective corporate governance requires accurate and reliable f‌inancial information. Historically,

each nation has developed and pursued its own f‌inancial standards; however, as f‌inancial markets consolidate into a global

market, there is a need for a common set of f‌inancial standards. As a result, there is a movement towards harmonization of

international f‌inancial reporting standards (IFRS) throughout the global economy. While there has been considerable

research on the effects of IFRS adoption, there has been relatively little systematic study as to the antecedents of IFRS

adoption. Consequently, this study seeks to understand why some economies have quickly embracedIFRS standards while

others partially adopt IFRS and still others continue to resist.

Research Findings/Results: After controlling for market capitalization and GDP growth, we f‌ind that foreign aid, import

penetration, and level of education achieved within a national economy are all predictive of the degree to which IFRS

standards are adopted across 132 developing, transitional and developed economies.

Theoretical/Academic Implications: We found that all three forms of isomorphic pressures (i.e., coercive, mimetic, and

normative) are predictive of IFRS adoption. Consequently, institutional theory with its emphasis on legitimacy-seeking by

social actors wasrelatively well supported by our data. Thissuggests that the IFRS adoption process is driven more by social

legitimization pressures, than it is by economic logic.

Practitioner/Policy Implications: For policy makers, our f‌indings suggest that the institutional pressures within an

economy are the key drivers of IFRS adoption. Consequently, policy makers should seek to inf‌luence institutional pressures

that thwart and/or enhance adoption of IFRS. For executives of multinational f‌irms, our f‌indings provide insights that can

help to explain and predict future IFRS adoption within economies where their foreign subsidiaries operate. This ability

could be useful for creating competitive advantages for foreign subsidiaries where IFRS adoption was resisted, or avoiding

competitive disadvantages for foreign subsidiaries unfamiliar with IFRS standards.

Keywords: Corporate Governance, International Financial Reporting Standards, Institutional Theory, Isomorphism

INTRODUCTION

Given the inexorable rise of International Financial

Reporting Standards (IFRS) as the global accounting

benchmark, it is timely to ask why this general trend has

occurred and simultaneously, why some nations have

resisted its adoption. It has been previously noted that the

arguments for IFRS adoption are predominantly economic

in nature due to the expected benef‌its of enhanced transpar-

ency, quality and comparability, but there is relatively little

systematic empirical support for any of these three ration-

ales (e.g., Chua & Taylor, 2008). This state of affairs suggests

that economic explanations for the diffusion of IFRS are

inadequate.

Nonetheless, Smith (2008:25) asks: “Are international

f‌inancial reporting standards an unstoppable juggernaut for

US and global f‌inancial reporting?” Unfortunately, the litera-

ture on the adoption of accounting standards has lacked

theory (e.g., Hope, 2003), used a limited number of countries

in their sample (e.g., Ball, Robin, & Wu, 2003), and has gen-

erally focused on the extremes of IFRS adoption and ignored

“partial” adopters (e.g., Hope, Jin, & Kang, 2006). Further-

more, there has been relatively little research at the national

level to explain this crucial international trend.

Recently, scholars have begun to pay more attention to

what determines IFRS adoptions across countries (e.g.,

*Address for correspondence: 2137 Constant Hall, Old Dominion University,Manage-

ment Department, Norfolk, VA, 23529-0011, USA; E-mail: WJudge@odu.edu

161

Corporate Governance: An International Review, 2010, 18(3): 161–174

© 2010 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2010.00798.x