Mandatory IFRS Adoption, Accounting Harmonization, and Cross-Border Capital Flows: Evidence from Nigeria and Ghana

This study provides a rigorous comparative analysis of the effects of mandatory IFRS adoption on accounting harmonization and cross-border capital flows in Nigeria and Ghana, two West African economies that share historical, linguistic, and economic ties but differ in their IFRS adoption timelines and regulatory environments. The theoretical premise of international accounting harmonization holds that common standards reduce information asymmetry for cross-border investors, lowering the cost of capital and stimulating foreign portfolio and direct investment. This study tests this premise empirically in a dual-country setting with complementary institutional characteristics. The study uses panel data from 110 listed companies, 55 in Nigeria and 55 in Ghana, for the period 2007 to 2023, spanning the pre- and post-IFRS adoption windows for both countries. Accounting harmonization is measured using the Euclidean distance between reported accounting ratios and IFRS benchmark norms, as well as value relevance comparability scores. Cross-border capital flows are measured using bilateral FDI and portfolio investment data from IMF Coordinated Portfolio Investment Survey records. Difference-in-differences estimation with country and year fixed effects is applied. Results demonstrate that IFRS adoption significantly improved accounting comparability between the two markets and was associated with a 28 percent increase in bilateral cross-border portfolio investment post-adoption. The foreign investment attraction effect was stronger for firms with higher IFRS compliance quality. The study contributes an original West African IFRS harmonization model and recommends mutual recognition agreements between the Nigerian Exchange Group and Ghana Stock Exchange to further reduce cross-listing barriers.

Keywords: IFRS adoption, accounting harmonization, capital flows, Nigeria, Ghana.