Abstract:
Investors have access to foreign diversification either through foreign direct
investment or through foreign portfolio investment. Some Sub-Saharan
African (SSA) countries have adopted the International Financial Reporting
Standards (IFRS) for the preparation and presentation of their financial
statements. This requires that their statements must be audited. Auditing has
also been embraced by these countries, to give independent assurance that they
are not misleading the general public. This consequently draws the attention of
foreign investors to such countries. This study sought to examine the effect of
the Strength of Auditing and Reporting Standards (SARS) on foreign
investments and to also consider the moderating role of legal origin, on the
relationship between SARS and foreign investments. The study adopted the
positivism paradigm and employed the quantitative approach, together with
the explanatory research design, involving 33 out of 48 SSA countries. The
study used a dataset of 396, for a period spanning 12 years. Using the System
Generalised Method of Moments, models were estimated and it was found that
SARS has a positively significant relationship with both foreign direct
investment and foreign portfolio investment. Legal origin of SSA plays a
significant moderating role in the attraction of foreign investment to SSA
countries. It is recommended that governments of SSA countries should
develop their regulatory system to effectively support Auditing and Reporting
Standards, so they can attract more foreign investments.
