The effect of international financial reporting standards on financial inclusion: A country-level analysis

Abstract

Many studies have examined the drivers of financial inclusion. However, few have explored the impact of the accounting framework on financial inclusion. Our study aims to investigate whether the adoption of International Financial Reporting Standards (IFRS) affects financial inclusion. We use a two-stage regression method to analyze data from 53 countries collected between 2017 and 2021. We construct a financial inclusion index using principal component analysis (PCA), which combines access to and use of financial services. We employ the Worldwide Governance Indicators, specifically Control of Corruption and Rule of Law, as instrumental variables. Our findings indicate that the adoption of IFRS enhances financial inclusion. Additionally, GDP per capita and the Internet penetration rate positively impact the financial inclusion index, highlighting the importance of economic growth and information technology in expanding financial access. Conversely, the employment-to-population ratio (ERP) has an adverse effect, suggesting that higher employment rates do not necessarily lead to better financial access. These results imply that IFRS can serve as a tool to promote financial inclusion. Based on these findings, the study recommends that policymakers encourage IFRS adoption to improve access to and utilization of financial products.