Strength Of Auditing And Reporting Standards And Foreign Investments In Sub Saharan Africa: The Moderating Role Of Legal Origin

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.