The Role of Institutional Strength in Enhancing the Effect of International Financial Reporting Standards on FDI Attraction in Nigeria

Abstract This study examines the role of institutional strength in enhancing the impact of International Financial Reporting Standards (IFRS) adoption on foreign direct investment (FDI) attraction in Nigeria. The study specifically investigates the relationship between IFRS adoption and foreign investment in equity, money market portfolios, and suppliers’ credit. Anchored on investment and institutional theories, the study adopts a descriptive research design using secondary data covering the period 2015–2023, corresponding with Nigeria’s IFRS implementation phase. Data were sourced from the Central Bank of Nigeria and the World Bank Worldwide Governance Indicators database. The Generalized Method of Moments (GMM) panel estimation technique was employed to address potential endogeneity and dynamic relationships among the variables. The findings indicate that IFRS adoption alone does not significantly attract foreign investment. However, its effectiveness improves when supported by strong institutional factors such as political stability and effective corruption control. While IFRS enhances financial transparency and comparability, foreign investors are more responsive to governance credibility and a stable political environment. The study concludes that IFRS adoption should be complemented with strong institutional reforms to effectively attract and sustain foreign investment inflows in Nigeria.