Factors Affecting The Adoption Of IFRS By Countries Along The Belt And Road Initiative

As an international business language,accounting is an important foundation for the development of economic activities as well as an important guarantee for international economic and trade exchanges.Studies have shown that differences in accounting standards reduce the comparability of accounting information between different economies,thus affecting investors' decision-making and hindering cross-border capital flows.Therefore,with the in-depth development of economic globalization,the international convergence of accounting standards has become an international consensus.Since the Belt and Road Initiative was proposed in 2013,China's direct investment in countries along the route has shown a gradual growth trend.However,the accounting standards vary from country to country along the Belt and Road Initiative,and the degree of convergence of national accounting standards to international accounting standards varies.This paper aims to explore the factors affecting the degree of convergence to international accounting standards of countries along the Belt and Road Initiative.Studying this issue will help us understand the motivations behind countries' decisions to converge with international accounting standards,thus providing guidance for countries' formulation of convergence strategies and facilitating economic and trade exchanges as well as capital flows between China and countries along the Belt and Road Initiative.Regarding the connotation of International Convergence of Accounting Standards,different experts and scholars have given their explanations.Based on their opinions,this paper finds that International convergence of Accounting Standards means accounting standards in different countries are gradually converging to a set of globally accepted accounting standards.For the time being,the International Financial Reporting Standards(IFRS)developed by the International Accounting Standards Board(IASB)is playing the role.Therefore,this paper defines International Convergence of Accounting Standards as:the accounting standards of a country or a region are converging with IFRS.In the field of international accounting research,various macro environmental factors have been used to explain the international differences in accounting standards and practices.It is because the environment differs from country to country that there exist diverse accounting standards and practices in the world.Accounting is inseparable from the macro environment in which it is developed.A country's accounting standards must be compatible with its institutional environment.IFRS is a set of accounting standards mainly based on the institutional environment of developed countries.These countries have relatively developed economies and sound legal systems.Based on the research results of scholars such as Zeff and La Porta,this paper analyzes the adaptability of IFRS to a country's level of economic development and legal system,and proposes the following two research hypotheses.According to Zeff(1978),accounting standards have economic consequences.Studies have shown that the international convergence of accounting standards can bring a lot of economic benefits to a country,but the convergence effect depends to a large extent on whether the international financial reporting standards are compatible with the country's environment and whether the accounting standards can be well implemented.For countries with a low level of economic development,even if they change the local accounting standards to adopt IFRS,IFRS may not be effectively implemented and domestic stakeholders may suffer losses,which can bring more risks than benefits.Therefore,this paper believes that the higher the level of economic development in a country,the higher the degree of convergence with IFRS.Secondly,studies by La Porta et al.(1998)have shown that countries with different legal systems differ in the degree of investor protection,and the differences will further affect the accounting system.This paper mainly compares the degree of investor protection,ownership concentration,characteristics of accounting information and accounting standards between common law countries and civil law countries.Since countries that dominate the formulation of IFRS mainly belong to common law legal system,IFRS and accounting standards in common law countries share similar characteristics.Therefore,this paper believes that the degree of convergence with IFRS is higher in common law countries.Based on the above research hypotheses,this paper establishes a regression model based on the panel data of 65 countries along the Belt and Road Initiative from 2003 to 2017 to discuss the impact of level of economic development and legal system on the degree of convergence with IFRS.Based on the criteria provided by International Accounting Standards Board,that is,whether a country requires domestic public companies to use IFRS,this paper divides the degree of convergence with IFRS into two categories:adopted and not adopted.At the same time,this paper uses per capita GDP to measure the level of economic development of a country and uses a dummy variable that takes 1 if a country belongs to the common law legal system.The empirical results show that among the countries along the Belt and Road Initiative,countries with higher level of economic development and common law countries with higher degree of investor protection have higher degree of convergence with IFRS.The results have certain implications for countries' formulation of convergence strategies.This paper believes that when considering the convergence to IFRS,a country should determine an appropriate time schedule and formulate convergence strategies in light of domestic institutional environment.Moreover,for countries that have adopted IFRS but whose institutional environment is not yet mature,they should strengthen economic development and improve their legal system so as to reduce the risk of convergence to IFRS.This paper uses empirical research method to analyze the factors affecting the convergence with IFRS of countries along the Belt and Road Initiative,which enriches studies on the international convergence of accounting standards.