Impact of mandatory IFRS adoption on economic growth: the moderating role of Covid-19 crisis in developing countries

Research Question: Does Covid-19 crisis moderate significantly the relationship between mandatory International Financial Reporting Standards (IFRS) adoption and economic growth in developing countries, especially in the MENA (Middle East and North Africa) region and SSA (Sub-Saharan Africa) countries? Motivation: Two sources of motivation are behind this study. First, research works on the impact of mandatory IFRS adoption on macroeconomic indicators such as economic growth are still scarce. Second, studying the impact of mandatory IFRS adoption on economic growth before and during the Covid-19 crisis allows to better understand this relationship in times of crisis. Idea: This article aims to investigate the moderating role of Covid-19 crisis in the relationship between mandatory IFRS adoption and economic growth in developing countries. Tools: The study was conducted based on panel data from 30 developing countries (15 MENA countries and 15 SSA countries) during the period 2017–2020. Collected data were analysed by using the Generalized Least Squares (EGLS/weighted cross-section) with fixed effect estimation technique. Findings: The main results of the study show that mandatory IFRS adoption has a positive impact on economic growth of the full sample, and that this positive impact is reduced during Covid-19 crisis. Contribution: The study results are very useful to policymakers and regulators in developing countries, especially in crisis periods.

Impact of mandatory IFRS adoption on economic growth: the moderating role of Covid-19 crisis in developing countries

Introduction
Undoubtedly, improving economic growth is considered as the main objective of economists, economic researchers and policymakers.A robust economic growth can be a major driver of poverty alleviation (Thorbecke, 2013;Anand et al. 2014;etc.),unemployment reduction (Sadiku et al., 2015;Bayrak & Tatli, 2018;Xesibe & Nyasha, 2020;Hjazeen et al., 2021;Alabed et al., 2022 etc.), etc. Nowadays, many developing countries have made efforts to promote economic growth.Among these efforts, the adoption of International Financial Reporting Standards (IFRS) is largely recommended by the international organizations such as the World Bank (WB) and the International Monetary Fund (IMF) in their several Reports on the Observance of Standards and Codes (ROSC) on the Accounting and Auditing (AA).In its literature review on the economic impact of IFRS adoption, Nurunnabi (2021) indicates that the adoption of high-quality set of harmonized accounting standards (IFRS) can improve trade, foreign direct investment (FDI) and reduce information asymmetries.
During the two last decades, adoption of IFRS has known a remarkable trend (Elhamma, 2014;Bengtsson, 2021), especially after the decision of the European Union (EU) in 2002 (regulation No. 1606(regulation No. /2002) ) to require IFRS for all listed companies on EU stock markets, from 2005 onwards.According to a report by the IFRS Foundation in 2018, 144 or 87% of jurisdictions around the world require IFRS for all or most companies (IFRS foundation, 2018).To better understand the macroeconomic consequences of the mandatory IFRS adoption, some researchers have been interested on several topics such as the impact of IFRS adoption on FDI inflows (Márquez-Ramos, 2008;DeFond et al., 2011;Gordon et al., 2012;Akisik, 2014;Yousefinejad et al. 2018;Musah et al., 2020;Siriopoulos et al., 2021;Elhamma, 2023;etc.),economic growth (Oppong & Aga, 2019;Akisik et al., 2020;Owusu et al., 2022;etc.),etc.However, accounting and economic empirical studies on the relationship between mandatory IFRS adoption and macroeconomic indicators in Covid-19 crisis period are absent.According to Rinaldi et al. (2020: 180), "while accounting and accountability research has developed and become more sophisticated, the challenges posed by the Covid-19 pandemic provides both a challenge and need for research in this area to become more impactful".
In this context, this study aims to examine the moderating role of Covid-19 crisis in the relationship between mandatory IFRS adoption and economic growth in developing countries, especially in the Middle East and North Africa (MENA) region and Sub-Saharan Africa (SSA).The key question in this research is therefore: Does Covid-19 crisis moderate significantly the relationship between mandatory IFRS adoption and economic growth in developing countries, especially in MENA and SSA?
MENA is a large region that is characterized by substantial petroleum and natural gas reserves.According to the January 1, 2009 issue of the Oil and Gas Journal, MENA countries hold 60% of the world's oil reserves and 45% of the world's natural gas reserves.Currently, seven (Algeria, Iran, Iraq, Kuwait, Libya, Saudi Arabia and United Arab Emirates) of the thirteen countries of the Organization of the Petroleum Exporting Countries (OPEC) are part of the MENA region.SSA is composed of countries located in the area that lies south of the Sahara.The United Nations Development Programme (UNDP) applies the "sub-Saharan" classification to 46 of Africa's 54 countries.
Our objective in this research is to explain the evolution of economic growth in relationship between the mandatory IFRS adoption before and during the Covid-19 crisis.In order to achieve this objective, a panel data from 30 developing countries (15 MENA countries and 15 SSA) spanning 4 years over the period 2017-2020 was used.Therefore, the full sample consists of 120 observations.Two main results should be highlighted.First, mandatory IFRS adoption has a positive and significant impact on economic growth for the full sample.Second, the interaction between mandatory IFRS adoption and Covid-19 crisis has a negative and significant impact on economic growth for all selected developing countries.This implies that Covid-19 crisis decrease significantly the positive impact of mandatory IFRS adoption on economic growth.
There are both theoretical and practical contributions of this present research.For theoretical contributions, the present study results add knowledge to the existing economic and accounting literature on the relationship between mandatory IFRS adoption and some macroeconomic indicators, especially in the crisis periods by providing some empirical evidence on the moderating effect of Covid-19 crisis on the relationship between mandatory IFRS adoption and economic growth in developing countries.To the author's knowledge, this is the first research study to investigate the impact of mandatory IFRS adoption on economic growth by using Covid-19 crisis as a moderator.For practical contributions, this research work is very useful to policymakers and regulators in developing countries.
The remainder of the paper is structured as follows.In the second section, we provide literature review and hypotheses development.In the third section, we present our methodological choices.In the fourth section, we report the empirical results.Finally, in the fifth section, we report summary and conclusion.

Literature review and hypotheses development 2.1 Impact of mandatory IFRS adoption on economic growth
Research studies on the link between IFRS adoption and macroeconomics indicators such as economic growth are very limited (Elhamma, 2023).On the hand, the accounting scholars are interested more on issues at the firm level (Owusu et al., 2017;Mameche & Masood, 2021).On the other hand, economic researchers investigating the drivers of economic growth have not studied IFRS mandatory adoption much (Oppong & Aga, 2019).Akisik (2013) examined the relationship between accounting regulation, financial development, and economic growth in fifty-one developed and emerging market economies over the period 1997-2009.
The study results showed a positive relationship between economic growth and highquality (international) accounting standards.In the same sense, Özcan (2016), by using a sample of 41 countries that have adopted IFRS and 29 countries that have not yet adopted IFRS during the period between 2005 and 2015, studied the relationship between adoption of IFRS and countries' economic growth.The research results showed that IFRS adoption has significantly increased countries' economic growth.Based on a sample of 28 countries in the EU and data from 2005 to 2014, Oppong and Aga (2019: 792) demonstrated that "IFRS adoption improves the economic growth and that IFRS adoption matters for developing economies than developed ones".According to these results, the authors recommended to enforce the adoption of IFRS, especially in developing economies.
Recently, Akisik et al. (2020), by using data from 41 African countries over the period 1997 and 2017, have shown two main results.First, the relationship between IFRS adoption and economic growth is statistically insignificant.Second, the interaction between FDI and IFRS adoption (FDI x IFRS) has a significant and positive effect on economic growth, suggesting that the adoption of IFRS "alone may not be beneficial for economic growth, the use of IFRS appears to enhance the positive impact of FDI on economic growth" (Akisik et al., 2020: 11).More recently, Owusu et al. (2022) investigated the relationship between IFRS adoption and economic growth in 78 developing economies during the period between 1996 and 2013 and examined the role of the country-level institutional quality in this relationship.The study results show that countries that adopt IFRS experience better economic growth than non-adopting countries.Also, the findings demonstrate that the good institutions moderate significantly the relationship between IFRS adoption and economic growth.Thus we can formulate the following hypothesis: Hypothesis H1.Mandatory IFRS adoption has a positive and significant impact on economic growth.

IFRS and Covid-19 crisis
By using the agency theory, the IFRS adoption is originally intended to reduce the informational asymmetry between managers and shareholders, and therefore it is considered as a mechanism to discipline managers and reduces agency conflicts between the two parties.The agency relationship is defined by Jensen and Meckling (1976: 308) as "an agency relationship as a contract under which one or more persons (the principal[s]) engage another person (the agent) to perform some service on their behalf which involves delegating some decision-making authority to the agent".
According to this theory, and to reduce the information asymmetry problems between firms (managers) and its investors, the financial reporting information can be used as an important mechanism by the investors.The adoption of the IFRS standards limits the discretionary accounting choices that can be used by managers and therefore reduce their opportunistic behavior (Cuijpers & Buijnik, 2005).However, the question that arises is the following: Does the adoption of IFRS have the same role in times of crisis such as that of Covid-19?
Since the end of 2019, according to the World Health Organization (2022), the Covid-19 pandemic has resulted in more than 600 million confirmed cases and about 6 million deaths globally (https://covid19.who.int ).This health crisis, quickly transformed into an economic and social crisis, has produced several concerns about financial accounting.Several accounting scholars have issued calls for research for special issues or academic conferences (Rinaldi et al., 2020).Certainly, the year 2020 has witnessed the economic crisis caused by the pandemic of the coronavirus (Covid-19).The high degree of uncertainty caused by Covid-19 crisis (lockdown measures for example) is certainly to trigger updates to management's operating plans.In this situation, the most entities have several difficulties in estimating some items in financial statement by using IFRS standards.For instance, "management uses projections of future cash flows when testing for impairment of non-financial assets like goodwill; recognizing and measuring the impairment of financial assets; assessing whether the going concern basis of preparation is appropriate; and measuring the fair value of financial assets" (Tokar & Kumar, 2020: 2).In front of this difficult situation, The International Organization of Securities Commissions (IOSCO) has issued in 29 May 2020 a statement acknowledging that it is possible to use imperfect information in the preparation of financial statements.According to the IOSCO, "we remind issuers of their responsibility to use the best available information in making well-reasoned and supported judgments".In addition, IOSCO insists on using Non-GAAP financial measures, also called Alternative Performing Measures (APMs) when they are presented consistently from period-to-period, defined adequately, or are used to supplement financial information (IOSCO, 2020).
In this context, we can formulate the following hypothesis: Hypothesis H2.Covid-19 crisis moderates unfavourably the relationship between mandatory IFRS adoption and economic growth.

Sample of the study and data
The empirical analysis covers 30 developing countries over the period between 2017 and 2020.The sample is composed of: • 15 MENA countries: Algeria, Bahrain, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon, Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Tunisia and the United Arab of Emirates (UAE).
Impact of mandatory IFRS adoption on economic growth: the moderating role of Covid-19 crisis in developing countries • 15 sub-Saharan African countries: Burkina Faso, Burundi, Cameroon, Cote d'Ivoire, Gambia, Ghana, Kenya, Mali, Niger, Nigeria, South Africa, Tanzania, Togo, Zambia and Zimbabwe.
In this research, we use a secondary data.We obtain data especially from World Development Indicators (WDI) database published by the World Bank, World Governance Indicators (WGI), Deloite's ias.plus, and IFRS foundation website.

Measurement of variables and source of data
In this research, seven variables are used: economic growth (dependent variable), IFRS adoption (independent variable), Covid-19 crisis (moderator variable), foreign direct investment (FDI), inflation, trade openness and unemployment (control variables).Measurement and sources of data are reported in Table 1.
The scope of the present research is not limited to the impact of mandatory IFRS adoption on Economic growth, it explore the moderating effect of Covid-19 crisis on the relationship between mandatory IFRS adoption and economic growth.Equation 2 can be written as: (Eq.2): lnGdpCapit=β0+ β1IFRSit + β2Covid19it + β3(Covid19it*IFRSit) + β4lnFdiit + β5Inflatit + β6lnUneRatit + β7lnOpenes + εit Where "lnGdpCap" represents natural logarithm of GDP per capita (current USD); "IFRS" represents mandatory IFRS adoption; "Covid19" represents Covid-19 crisis; "lnFdi" represents natural logarithm of FDI net inflows (current USD); "Inflat" represents annual inflation (consumer prices-annual %); "lnUneRat" represents natural logarithm of annual unemployment rate; "lnOpenes" represents natural logarithm of trade openness; "i" denotes the country subscript."t" is the time period."βi" is the coefficient related to different types of variables and "εit" is the error term.
To avoid Heteroscedasticity and serial correlation in our models, the Generalized Least Squares (EGLS) method with fixed effect was employed (Hausman, 1978).
Impact of mandatory IFRS adoption on economic growth: the moderating role of Covid-19 crisis in developing countries

Descriptive statistics and correlations
The main data's descriptive statistics, including mean, standard deviation, minimum and maximum values are summarized in Table 2.In panel A for the full sample that includes MENA and SSA countries, lnGdpCap has a mean of 8.07 and IFRS has a mean of 1.19.When we compare panels B and C for MENA and SSA, lnGdpCap for MENA (9.03) is higher than that for SSA (7.10).In these countries, the comparison of lnFdi, Inflat and lnOpenes yields interesting results.The FDI for MENA countries is higher than that for SSA countries (2 vs. 1.93).This superiority is present also in terms of inflation control (5.54% vs. 17.95%) and trade openness (3.67 vs. 3.24).In terms of IFRS adoption and unemployment, these two groups resemble each other.

Regression analysis
In this sub-section, we test the two hypotheses of the present research.Firstly, we investigate the impact of mandatory IFRS adoption on economic growth (H1), and secondly, we highlight the moderation role of Covid-19 crisis in the relationship between mandatory IFRS adoption and economic growth (H2).Table 4 shows EGLS regression results.As shown in table 4, and in line with the prior researches, the study results show that the impact of mandatory IFRS adoption on economic growth is positive and statistically significant for the full sample (β=0.0387;p< 5% in model 1 and β=0.0960; p< 1% in model 2).These results confirm the validation of the first research hypothesis (H1) according to which the mandatory FRS adoption affects positively and significantly economic growth in developing countries, implying that countries that have adopted IFRS experience better economic growth than nonadopting countries.Our present results confirm those obtained by some research studies (Akisik, 2013;Özcan, 2016;Oppong and Aga, 2019;Owusu et al., 2022;etc.).However, the MENA region and SSA countries don't have same results.Mandatory IFRS adoption has a positive and significant impact on economic growth of the MENA region (β=0.1268;p< 1% in model 3 and β=0.1257; p< 1% in model 4).This relationship is not significant in SSA countries (model 5 and 6).These results can be explained by the fact that among the 15 SSA countries included in our sample, 6 countries are African French-speaking in the OHADA (Organization for the Harmonization of Business Law in Africa) system (Burkina Faso, Cameroon, Côte d'Ivoire, Mali, Niger and Togo).These countries have only recently adopted IFRS, exactly on January 1, 2019.This recent adoption of IFRS will not have a significant impact on economic growth in the very short run.
The interaction between mandatory IFRS adoption and Covid-19 crisis (IFRS*Covid19) has a significant negative impact on economic growth (β=-0.0649;p< 1% in model 2), this implies that the Covid-19 crisis moderates unfavorably the relationship between mandatory IFRS adoption and economic growth, especially the covid-19 crisis reduce the positive impact of IFRS adoption on economic growth.These results confirm the validation of the second research hypothesis H2.This relationship is significant for the both groups of countries (MENA and SSA), implying that Covid-19 crisis reduce the impact of IFRS adoption on economic growth in the both studied regions.
For the panel A that include the full sample, it is noteworthy that lnUneRat (β=-0.1198;p< 1% in model 1 and β=-0.0466;p< 5% in model 2) have a significant negative impact on lnGdpCap.Implying that low unemployment is crucial for improving economic growth of developing countries.This result confirms those obtained by other researchers in other contexts.Li and Liu (2012) found in China that unemployment has a negative impact economic growth.Soylu et al. (2017) examined the relationship between economic progress and unemployment in Eastern European Countries for the period of 1992-2014.The findings show the presence of an adverse long-term cointegration between unemployment and economic progress.

Summary and conclusion
This investigation was conducted to provide some empirical evidence of the moderating effect of Covid-19 crisis on the relationship between mandatory IFRS Impact of mandatory IFRS adoption on economic growth: the moderating role of Covid-19 crisis in developing countries adoption and economic growth in developing countries.A panel data of 30 MENA and SSA countries covering a period of 4 years, from 2017 to 2020, was analyzed by using the Generalized Least Squares (EGLS) with fixed effect estimation technique.Our study found two main results: • Firstly, mandatory IFRS adoption has a positive and significant impact on economic growth for the full sample.• Secondly, the interaction between mandatory IFRS adoption and Covid-19 crisis has a negative and significant impact on economic growth, implying that Covid-19 crisis decrease significantly the positive impact of mandatory IFRS adoption on economic growth.
This study makes important contributions to both accounting and economics literature.It is among the firsts to examine the effects of mandatory IFRS adoption on economic growth in times of crisis.To the author's knowledge, this is the first research study to investigate the impact of Covid-19 crisis on the relationship between mandatory IFRS adoption and economic growth in developing countries.In addition, our results have important managerial implications for policymakers and regulators.The mandatory IFRS Adoption improves economic growth, but this positive impact is significantly reduced in times of crisis (Covid-19 crisis).
Finally, we present the study limitations alongside the directions for further research.Indeed, two main limitations should be discussed in the present investigation.First, this empirical study focused only on two regions of the world (MENA and SSA).Therefore, to better understand the relationship between mandatory IFRS adoption and economic growth in Covid-19 crisis in developing countries, future researches may be conducted to study other regions in Asia, Latin America, etc.Second, this study did not account countries that have adapted their local accounting with IFRS standards (for example Algeria, Egypt, Tunisia, etc.).These countries are considered as "non-adopters of IFRS" in this research.Future studies may be conducted to test the impact of this adaptation on economic growth in Covid-19 crisis.Although these limitations, the present study results remain very useful to both academicians and policymakers in developing countries.