The effect of IFRS adoption on bank internationalisation

Abstract Banking is one of the highly regulated industries, where a single set of global standards is likely to play a significant role in eliminating double reporting and reducing information asymmetry. Accordingly, we use data on 98 countries over 9 years to examine whether the use of International Financial Reporting Standard (IFRS) drives bank internationalisation. The results show that the use of IFRS is positively and significantly associated with an increase in foreign investment in the banking sector by easing regulatory compliance. However, in developing countries, the benefit of IFRS increasing foreign investment banks is associated with both easing regulatory compliance and reducing information asymmetry between banks and their clients. Our results are consistent across different sub‐samplings, including EU versus non‐EU, high versus low absence, and divergence between domestic standard and IFRS. These results provide reassurance and clear evidence of how IFRS facilitates the global flow of capital, even in a highly regulated industry such as banks. The results are robust to alternative measurements of variables and endogeneity tests using the Two‐Stage Least Square, Two‐step System Generalised Method of Moments and Propensity Score Matching.