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Financial efficiency and accounting quality: The impact of institutional micro-factors on FDI

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  • Nam, Jouahn
  • Bon Sesay, Joseph
  • Wynne, Kevin
  • Zhang, Ge

Abstract

In this paper, we explore whether factors such as financial markets and accounting qualities contribute to foreign direct investment (FDI). We use a unique data source: the survey data from World Economic Forum, to measure the efficiency of the financial markets and the quality of accounting standards. With this unique data, we demonstrate that financial markets and accounting quality are important factors of FDI inflow into a country. In particular, FDI is positively correlated with the strength of financial audits and reporting standards and venture capital availability for all countries. We also show that accounting quality measures are more important for developing and emerging countries than for developed countries. On the other hand, financial market measures, especially the access to venture capital, have a bigger impact in attracting FDI flow into developed countries. These results support the hypothesis that local financial markets and accounting quality affect FDI. The results have strong policy implications for governmental regulatory agencies.

Suggested Citation

  • Nam, Jouahn & Bon Sesay, Joseph & Wynne, Kevin & Zhang, Ge, 2020. "Financial efficiency and accounting quality: The impact of institutional micro-factors on FDI," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 451-465.
    • Handle: RePEc:eee:jpolmo:v:42:y:2020:i:2:p:451-465
    DOI: 10.1016/j.jpolmod.2019.12.004
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    Cited by:

    1. Amponsah, Mary & Agbola, Frank W. & Mahmood, Amir, 2021. "The impact of informality on inclusive growth in Sub-Saharan Africa: Does financial inclusion matter?," Journal of Policy Modeling, Elsevier, vol. 43(6), pages 1259-1286.
    2. Batrancea Ioan & Rathnaswamy Malar Mozi & Gaban Lucian & Fatacean Gheorghe & Tulai Horia & Bircea Ioan & Rus Mircea-Iosif, 2020. "An Empirical Investigation on Determinants of Sustainable Economic Growth. Lessons from Central and Eastern European Countries," JRFM, MDPI, vol. 13(7), pages 1-24, July.
    3. Faheem Ur Rehman & József Popp & Ejaz Ahmad & Muhammad Asif Khan & Zoltán Lakner, 2021. "Asymmetric and Symmetric Link between Quality of Institutions and Sectorial Foreign Direct Investment Inflow in India: A Fresh Insight Using Simulated Dynamic ARDL Approach," Sustainability, MDPI, vol. 13(24), pages 1-18, December.
    4. Stojanović Jovana & Srbinoski Bojan & Denčić-Mihajlov Ksenija, 2022. "Do Audit and Accounting Practices Matter for Greenfield FDI Inflows?," Economic Themes, Sciendo, vol. 60(1), pages 41-56, March.

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    More about this item

    Keywords

    Foreign Direct Investment (FDI); Accounting quality; Financial markets; Policy implications; Logistic regression;
    All these keywords.

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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