Diffusion theory, economic consequences, and adoption of international standards on auditing around the world

Abstract

This paper examines the economic consequences of adopting the International Standards on Auditing (ISAs) from a diffusion of innovation theory perspective. Using a very extensive dataset with 160 countries over 20 years and generating 3,200 country-year observations, this study examines the impact of ISAs adoption on the economic consequences of adopting countries. Our findings are threefold. First, we show that early ISAs adoption has positively and significantly influenced three economic indicators of the adopting countries: (i) economic growth, (ii) foreign direct investment (FDI) inflows, and (iii) exchange rate. Second, our results show that late ISAs adoption has positively and significantly influenced two economic indicators: (i) exports and (ii) interest rates, but negatively with imports. Third, we find a significant positive association between ISAs adoption with amendments or translation and two economic indicators: (i) FDI and (ii) exchange rate, but negative with inflation. Finally, and by contrast, we find a negative link between early ISAs adoption, economic growth rate, and exports. Our findings have implications for theory and practice.