IFRS and stock exchange development in sub-Saharan Africa: a logistic model
-
DOIhttp://dx.doi.org/10.21511/imfi.17(3).2020.30
-
Article InfoVolume 17 2020, Issue #3, pp. 397-407
- Cited by
- 738 Views
-
545 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study examines the impact of International Financial Reporting Standards (IFRS) on the stock exchange development (SED) in sub-Saharan Africa (SSA). The essence is to offer suggestions on how the adoption of IFRS in the SSA region can benefit their SED. The study employed logistic regression analysis of data for 40 SSA countries for the period 2010–2018. Data were extracted from the World Bank’s World Development Index (WDI) database, sampled countries’ stock exchange websites, and the IFRS website. The dependent variable (SED) took two values: 1 – if a stock exchange is established in the observed country’s period, otherwise – 0. The model result was well fitted: p < 0.0001, correctly classified an overall SED accuracy up to 84.84% and excellent area predictive power at a receiver operator characteristic of 0.9347. The study observed that IFRS had high degree of co-movement with SED, and changes in IFRS had a strong positive impact on SED. Besides, changes in market size, ICT infrastructure, and public sector management and institution (PSMI) had a positive and significant impact on SED. The odd ratio of SED compared to non-SED is greatest with IFRS (40.67 times), and for the other variables, the ratios are: market size (4.02), ICT infrastructure (1.26), and PSMI (2.73), respectively. On a greater extent, SSA countries should allow the use of IFRS for financial reporting to expedite SED.
- Keywords
-
JEL Classification (Paper profile tab)G15, M41, N27
-
References39
-
Tables6
-
Figures1
-
- Figure 1. ROC curve
-
- Table 1. Variable descriptions
- Table 2. SED description and the use of IFRS (2010–2018)
- Table 3. Variables statistic (2010–2018)
- Table 4. Correlation matrix
- Table 5. Stock exchange fit test classification
- Table 6. Regression results
-
- Afful, K. B., & Asiedu, K. F. (2014). Stock markets development in sub-Saharan Africa: business regulations, governance and fiscal policy. International Journal of Economics and Finance, 6(1), 15-31.
- Ahmadi F. (2015). The relationship between transparency and capital market efficiency in Iran exchange market. World Scientific News, 21, 111-123.
- Azeez, B. A., & Obalade, A. A. (2019). Macroeconomic determinants of stock market development in Nigeria: (1981-2017). Acta Universitatis Danubius, 15(1), 203-216.
- Ball, R., & Brown, P. (1968). An empirical evaluation of accounting income numbers. Journal of Accounting Research, 6(2), 159-178.
- Bhunia, A. (2011). An impact of ICT on the growth of capital market- empirical evidence from Indian stock market. Information and Knowledge Management, 1(2), 7-14.
- Dunning, J. H. (2006). Towards a new paradigm of development: Implications for the determinants of international business. Transnational Corporations, 15(1), 173-227.
- Emudainohwo, O. B., Boateng, A., Brahma, S., & Ngwu, F. (2018). Analysis of government policies, institutions and inward foreign direct investment: evidence from sub-Saharan Africa. Thunderbird International Business Review, 60(4), 523-534.
- FASB. (2008). Statement of Financial Accounting Concepts No. 2: Qualitative Characteristics of Accounting Information.
- Hayfa, C., Nadia, T., & Elleuch, S. (2013). The effect of IFRS on earnings quality in a European stock market: evidence from France. Interdisciplinary Journal of Research in Business, 2, 2046-714135.
- Hilbe, J. M. (2009). Logistic regression models. Chapman & Hall/CRC, Taylor & Francis Group. Broken Sound Parkway NW.
- Hong, H., & Stein, J. (2007). Disagreement and the stock market. Journal of Economic Perspectives, 21(3), 109-28.
- Horn, S., Reinhart C., & Trebesch, C. (2019). China’s overseas lending (NBER Working Paper 26050).
- Hsing, Y. (2014). Impacts of macroeconomic factors on the stock market in Estonia. Journal of Economics and Development Studies, 2(2), 23-31.
- Ibrahim, A. (2020). National transparency and the performance of the financial market in Nigeria. international Journal of Business and Finance Management Review, 8, 10-14.
- IFRS. (2020). Who uses IFRS standards?
- Imran, Z. A., Ejaz, A., Spulbar, C., Birau, R., & Nethravathi, P. S. R. (2020). Measuring the impact of governance quality on stock market performance in developed countries. Economic Research-Ekonomska Istraživanja, 33(1), 3406-3426.
- Jerven, M. (2013) Briefing: for richer, for poorer: GDP revisions and Africa’s statistical tragedy. African Affairs, 112(446), 138-147.
- Kaldor, N. (1961). Capital accumulation and economic growth. In F. A. Lutz, & D.C. Hague (Eds.), The theory of capital. St. Martins Press (pp. 177-222).
- Khan, H., Khan, S., & Zuojun, F (2020). Institutional quality and financial development: evidence from developing and emerging economies. Global Business Review.
- Kim, J., & Shi, H. (2008). Enhance disclosures via IFRS and stock price synchronicity around the world: Do analyst following and institutional infrastructure matter? (Working paper). The Hong Kong Polytechnic University.
- Kimeli, E. K. (2017). IFRS adoption and capital markets. Journal of Finance and Accounting, 5(1), 19-30.
- Kubota, M., & Zeufack, A. (2020). Assessing the returns on investment in data openness and transparency (World Bank Group Policy research working paper 9139).
- Kuvshinov., & Zimmermann, K. (2020). The big bang: stock market capitalization in the long run. European Historical Economics Society (EHES) (Working paper No. 135).
- Lang M., & Maffett M. (2011). Economic effects of transparency in international equity markets: A review and suggestions for future research. Foundations and Trends® in Accounting, 5(3), 175-241.
- Lee, S. G., Alford, M. H., & Gardner, L. (2017). The effects of information communication technology on stock market capitalization: A panel data analysis. Business and Economic Research, 7, 261-272.
- Mahajan, V., & Banga, K. (2005). The 86 percent solution: How to succeed in the biggest market opportunity of the next 50 years. London: Financial Times Press.
- Masry M. (2015). Measuring transparency and disclosure in the Egyptian stock market. Journal of Finance Bank Management, 3(1), 25-36.
- Okoye, P. V C., Okoye, J. F. N., & Ezejiofor, R.A. (2014). Impact of the IFRS adoption on stock market movement in Nigerian corporate organization. International Journal of Academic Research in Business and Social Sciences, 4(9), 202-218.
- Okwu, A.T. (2015). ICT adoption and financial markets: A study of the leading stock exchange markets in Africa. Journal of Accounting and Management, 5(2), 53-76.
- Osakwe, P. N. (2020). Building productive capacities and transforming economies to achieve sustained and inclusive development in Africa.
- Pradhan, R. (2015). Information communications technology (ICT) infrastructure impact on stock market-growth nexus: The panel VAR model. IEEE International Conference on Industrial Engineering and Engineering Management. 2015. 607-611.
- Prochazka, D., & Pelak, J. (2015). The development of capital market of new EU countries in the IFRS era. Procedia Economics and Finance, 25, 116-126.
- Stephany, G., & Krishnan, S. (2006). GDP-indexed bonds: making it happen, UN Department of Economic and Social Affairs (DESA) Working Papers, Economic and Social Affairs, 21, 1-17.
- Wang, J., & Yu, W. (2008). The information content of stock prices, reporting incentives and accounting standards: The international evidence (Working paper). The Hong Kong Polytechnic University.
- Wiley Interpretation and Application of IFRS standards. (2019). John Wiley and Sons, UK.
- Winful, E. C., Sarpong, D., & Agyei-Ntiamoah, J. (2016). Relationship between institutional quality and stock market performance: evidence from emerging economies. African Journal of Business Management, 10(19), 469-484.
- World Bank. (2020). World Development Indicator.
- World Economic forum (2013-2014). Global Competitiveness Index Data Platform.
- Yartey, C. A., & Adjasi, C. K. (2007). Stock market development in sub-Saharan Africa: critical issues and challenges (IMF Working paper, WP/07/209, August, 2007).