INTERNATIONAL FINANCIAL REPORTING STANDARDS ADOPTION, INVESTOR PROTECTION, AND FOREIGN PORTFOLIO INVESTMENT: A REVIEW

This paper aims to analyze the impacts of International Financial Reporting Standards (IFRS) adoption on foreign portfolio investment (FPI) in relation to investor protection based on existing empirical literature. This study uses a historical approach and focuses on thirty-six relevant articles published in accounting and finance journals. The author provides a theoretical groundwork of the association between IFRS adoption and FPI and summarizes the results. The findings are critically analyzed by employing developed vs. developing country lens. The review study reveals that the effects of IFRS adoption on FPI significantly differ between developed and developing countries. Although the positive impact of IFRS adoption on FPI is documented in existing literature, not all countries (particularly developing countries), firms, and users have benefited or equally benefited from IFRS adoption regarding FPI. In addition, the positive impacts of IFRS adoption on FPI are associated with the country's regulatory environment, such as level of investor protection. The findings of the study suggest that developing countries should ensure a proper regulatory environment to reap the full benefits of IFRS adoption. This review contributes to the existing literature by providing a comparative analysis of IFRS adoption effect on FPI between developed and developing countries while also suggests future research avenues. Association, Wiley, Emerald, Social Science Research Network (SSRN), and Google Scholar, a total number of thirty-six empirical studies dealing with IFRS adoption, FPI and investor protection are found. This literature review reveals that the effects of IFRS adoption on FPI significantly differ between developed and developing countries. This initial evidence in IFRS adoption on FPI literature implies that this issue is still in its infancy, and further research is required to capture the effect of IFRS adoption on FPI in developing country settings. Conducting a review of the adoption importance and that on adoption effects on by shedding light and developing


INTRODUCTION
With the emergence of globalization, corporate giants worldwide are expanding their business in every corner of the world. However, the use of different accounting systems and the prevalence of local accounting standards hinder uniform financial reporting throughout the world (International Accounting Standard Board [IASB], 2002). Thus, professional accountants worldwide assume that uniform accounting standards will harmonize the accounting practices worldwide and, in turn, will bring the financial reporting practices under one umbrella. IFRS is a single set of uniform accounting or financial Li, & Yan, 2004;Yan, 2004). It is argued that the worldwide adoption of IFRS can reduce this information barrier, thereby reducing home bias and enhancing cross-border investment flows (Levitt, 1998;IASB, 2002;White, 2008). Therefore, based on the predictions of MVPT and CAPM, it is expected that adopting IFRS contributes to reducing investors' home bias and thereby increasing the FPI of a country. However, there is little evidence regarding how global integration of financial reporting, such as IFRS adoption can mitigate home bias (Amiram, 2012) and thereby increase FPI, particularly in developing countries.

IFRS ADOPTION AND FPI
A considerable amount of literature (refer to Table 1) has been published on the effect of IFRS adoption on FPI. Most of these prior research works demonstrate that IFRS adoption enhances firms' as well as countries' ability to attract greater FPI. These benefits are due to improved familiarity (Amiram, 2012;Hamberg et al., 2013;Yu & Wahid, 2014) and reducing information asymmetry (explained by comparability, reporting quality, and transparency) after IFRS adoption (Beneish et al., 2015;DeFond et al., 2011;Florou & Pope, 2012;Hansen et al., 2015).
Familiarity is one of the critical issues that prior studies consider explaining the relationship between IFRS adoption and FPI. A number of literary works (Bradshaw, Bushee, & Miller, 2004;Covring, Defond, & Hung, 2007;Amiram, 2012;Hamberg et al., 2013;Yu & Wahid, 2014;Garrouch 2016) find that familiarity of investors on accounting standards assists investment decisions and thereby, encourages FPI. Their findings are rational with the claims that the IFRS adoption facilitates investors in evaluating the performance of foreign firms and the market by establishing uniform accounting or reporting standards (Amiram, 2012). For example, studying firm-level holding of more than 25,000 mutual funds, Covring et al. (2007) suggest that average holdings of the foreign mutual funds are significantly higher for a firm that adopts International Accounting Standards (IAS). Authors further indicate that investors' information processing costs are reduced after IAS adoption, providing information in a more familiar form.
In addition, Bradshaw et al. (2004) reveal that companies using accounting or financial reporting standards similar to US GAAP receive a high level of U.S. institutional investors. This is because such accounting practices are more familiar to U.S. investors. Additionally, Amiram (2012) and Yu and Wahid (2014) mention that countries and firms that adopt IFRS experience a greater level of FPI. Their findings indicate that familiarity with IFRS drives the increase in foreign shareholdings. Apart from this, Hamberg et al. (2013) find that FPI increased in Swedish firms following IFRS adoption, mainly from other IFRS adopting countries. Authors argue that the increase in FPI is driven by the investor's familiarity with reporting standards. Similarly, Omotoso, Schutte, and Oberholzer (2021) suggest that the adoption of IFRS increases FPI in African countries. These outcomes imply that adopting IFRS in a country enables domestic investors to familiarize themselves with accounting standards of more countries, help reduce investors' information processing costs, and eventually increase FPI.
Information asymmetry is considered another critical factor in explaining the relationship between IFRS adoption and FPI. Prior studies demonstrate information asymmetry in terms of comparability, reporting quality, and transparency (DeFond et al., 2011;Beneish et al., 2015;Hansen et al., 2015). Contemporaneous studies (Yu, 2010;DeFond et al., 2011;Khurana & Michas, 2011;Florou & Pope, 2012) assert that mandatory adoption of IFRS enhances comparability of financial information and thus promotes greater FPI (see Table 1 for details). Their outcomes are consistent with the arguments that harmonization around IFRS improves reporting quality and comparability and, thus, reduces information asymmetry (Levitt, 1998;IASB, 2002). Similarly, Lee and Fargher (2010) suggest a uniform accounting standard is likely to enhance the comparability of financial information across companies and thereby assist in reducing information asymmetry.
Besides that, DeFond, Hu, Hung, and Li (2012) assert that the relative attraction of U.S. firms to foreign investors reduced after worldwide IFRS adoption. Their findings are consistent with the claim that a single set of financial reporting standards enables global investors to minimize information processing costs. As a result, firms can enjoy relatively greater comparability benefits through IFRS adoption. Empirical evidence of Hong, Hung and Lobo (2014) imply that adoption of IFRS reduces information asymmetry between a business entity and its stakeholders and enables firms to increase earnings from overseas markets. Hsu and Lai (2013) suggest that firms using IFRS-based standards experience greater foreign mutual fund ownership than firms with local reporting standards. Additionally, Manyara (2017), Chen, Ng, and Tsang (2015), as well as Wang, Welker, and Wu (2015) examine how the adoption of IFRS influences firms' decisions regarding listing in foreign stock markets. Their findings recommend that the implementation of IFRS encourages the volume of cross-listings and improves access to equity capital. Apart from this, Han, Yi, Park, and Seo (2016) examine whether the adoption of IFRS enhances the effectiveness of financial information in Korea. Their result suggests that foreign investments in small firms have significantly improved after IFRS adoption.
Besides that, Rueda-Sabater (2000), Chipalkatti, Le, and Rishi (2007) and Akisik and Pfeiffer (2009) assert that in a developing or emerging economy, foreign equity ownership is positively linked with the level of corporate governance and quality of reporting standards. Similarly, Bradshaw et al. (2004) suggest that U.S. institutional investors invest more in companies that follow reporting standards consistent with US GAAP. This is because such accounting practices are perceived as higher quality. Additionally, Bova and Pereira (2012) assert that cross-border investment is positively allied with IFRS compliance. Their findings are consistent with the claim that international investors demand a highquality financial or accounting standard to protect their investments within the companies. Apart from these, Ahearne et al. (2004) state that disclosure requirements, financial reporting standards, and regulatory environment are important factors for explaining the home bias. This is because higher disclosures rules limit the chance of domestic investors having access to private information.
Transparency is an essential issue in explaining information asymmetry as well as the relationship between IFRS and FPI. Prior empirical studies (Aggarwal, Klapper, & Wysocki, 2005;Brüggemann, 2011;Hansen, Miletkov, & Wintoki, 2013;Hansen et al., 2015;Garrouch, 2016) claim that the transparency effect of IFRS is positively associated with FPI. Their outcomes are consistent with the claims that transparency decreases information asymmetries, strengthens the comparability effect (Nnadi & Soobaroyen, 2015), and promotes foreign investment (Babío & Muiño, 2005;Márquez-Ramos, 2011). For example, Hansen et al. (2015) argue that firms can increase the transparency of financial information through IFRS adoption and attract more foreign investment. Similarly, Garrouch (2016) reveals that international accounting harmonization enhances foreign shareholdings of PLCs in France. The result implies that assuming transparency benefits foreign investors seeking to invest in companies that apply international accounting or reporting standards.
Besides that, Aggarwal et al. (2005) suggest that emerging markets with high-quality financial reporting standards attract greater U.S. mutual fund investment. The result is more pronounced for companies that ensure greater transparency in accounting information. Additionally, Hansen et al. (2013) suggest that firms using IFRS with strong reporting incentives and more transparent financial disclosures have experienced greater foreign shareholdings. Besides this, Brüggemann (2011) investigates the consequences of IFRS adoption on international capital flows concerning transparency. The author finds that the adoption of IFRS significantly increases the open market trading activity of stocks.
Despite the documented positive impacts of IFRS adoption, it is also evidenced that adoption of IFRS does not have a substantial positive effect on FPI in several countries, particularly in developing countries. For example, with a sample of 5518 firm-year observations from China for -2008, DeFond et al. (2014 suggest that IFRS adoption has no substantial effect on foreign shareholdings in China. Similarly, using a sample of 40 South African firms for 2001-2006, Sherman and De Klerk (2015 reveal no substantial increase in foreign shareholdings following IFRS adoption in South Africa. Additionally, Udofia (2018) examines the impacts of IFRS adoption on FPI in Nigeria and suggests that compared to the post-IFRS adoption period, the pre-IFRS adoption period has a greater frequency of growth in FPI. Further, with a sample of 5784 firm-year observations from Malaysia for the period 2008, Shovon (2019 reveal that adopting IFRS had no significant positive effect on FPI in Malaysia. Besides that, some cross-country studies suggest that the adoption of IFRS has no significant impact on foreign shareholdings in countries where investors' rights are not well protected (Shima & Gordon, 2011;Hansen et al., 2015). Since developing countries frequently suffer from weak investor protection, this finding indicates that the positive effects of IFRS adoption on foreign shareholdings are not substantial in developing countries. Overall, these findings suggest that IFRS adoption's impact on FPI significantly differs between developed and developing countries. There is no substantial growth in foreign ownerships following IFRS adoption.

Shima and Gordon (2011)
Investigate whether a country's use of IFRS is associated with U.S. investors investment in foreign equities.

IFRS ADOPTION, INVESTOR PROTECTION, AND FPI
Investor protection is defined as the protection of investors such as stockholders, bondholders, and creditors by the legal framework of a country (Porta, Lopez, Shleifer, & Vishny, 2000). It indicates efforts and actions taken by a country to monitor, defend, and enforce the rights of the investors (Jeanjean, 2012). In accounting standards, investor protection designates something to ensure that investors have enough information to make informed investment and voting decisions. It also specifies the action to prevent misleading disclosures and legal framework from protecting investors from dishonest investment brokers (Selling, 2011).
To what extent the investor's interest is protected from expropriation is a primary concern of foreign investors, particularly minority shareholders (Poshakwale & Thapa 2011). Therefore, investor protection is a significant determinant of cross-border capital flows as well as portfolio diversification (Aggarwal et al., 2005;Leuz, Lins, & Warnock 2010;Poshakwale & Thapa, 2011;Florou & Pope, 2012;Hansen et al., 2015). Recently, academics have started to investigate the relationship between investor protection and investors' portfolio holdings. A number of literature suggest that the extent of investor protection is positively associated with FPI (Giannetti & Koskinen, 2010;Poshakwale & Thapa, 2011;Giofré, 2014). The rationale of this argument is that investors are confident and prefer to invest in a market where investors' rights are strongly protected by the legal framework of a country (Poshakwale & Thapa, 2011). On the other hand, investors are reluctant or avoid investing in markets or countries that do not properly protect investors' rights (Giannetti & Koskinen, 2010;Giofré, 2014). This is because foreign investors face information problems in countries with lower-level investor protection (Leuz et al., 2010).
A number of researchers investigate how the level of investor protection affects cross-border capital flows and foreign investor's assets allocation decisions (see Table 2 for details). Using a sample of 14 major investing countries for 2001-2006, Giofré (2013) reveals a significant cross effect of the level of investor protection rights on FPI. In the same vein, Aggarwal et al. (2005), Giannetti and Koskinen (2010) and Poshakwale and Thapa (2011) find that foreign institutional investors such as mutual funds choose to invest in developing/emerging countries or markets with the strong regulatory framework, investor protection, and high-quality accounting standards. On the other hand, Leuz et al. (2010) conclude that foreign investors are unwilling to invest in companies that reside in a jurisdiction with weak disclosure practice and poor protection of shareholder's rights. In addition, Porta, Lopez, Shleifer, & Vishny (1997) show that the stock and debt market is significantly tiny in countries where investor rights are not strongly protected. They claim that the level of enforcement and quality of the legal framework significantly differs across the jurisdiction. Therefore, the difference in legal protection can justify why companies in some jurisdictions attract more capital than others (Poshakwale & Thapa, 2011).
Prior research works (Ball, Kothari, & Robin, 2000;Ball, Robin, & Wu, 2003;Lang, Raedy, & Wilson, 2006;Epstein, 2009) suggest that the benefits of uniform financial reporting standards can differ significantly across jurisdictions. In addition, Holthausen (2009) reveals that the legal and institutional framework, such as the extent of investor protection, substantially affects the outcomes of financial reporting standards. Prior research works that measure the impact of IFRS on FPI suggest that adoption of IFRS significantly increase the FPI, but the results are more pronounced in countries that ensure better investor protection (Yu, 2010;Shima & Gordon, 2011;Amiram, 2012;Beneish et al., 2015;Hansen et al., 2015). For example, Yu (2010) finds that adopting IFRS helps attract greater foreign capital. This finding is more evident in a country that ensures the protection of shareholder's rights. Similarly, Beneish et al. (2015) assert that foreign portfolio investment is positively associated to the level of creditors' rights and governance quality in a country. In the same vein, Amiram (2012) finds that countries that provide better protection to shareholders' or investors' rights experienced substantial foreign equity investment growth. Likewise, Hansen et al.(2015) find that firms that reside in a country that provides high-level investor protection can attract more foreign investors or foreign investment by increasing the transparency of financial information. These findings suggest that adopting IFRS itself may not be enough to attract FPI if the investor's rights are not well protected. The level of property protection with diverse governance models has a substantial impact on both FPI and FDI.

SUGGESTION FOR FUTURE RESEARCH
This section suggests three research avenues for future researchers to enhance their understanding of the topic reviewed in this study.
Although a large number of literature endeavors to measure the economic consequence of IFRS, most of these studies have taken place in developed countries (Lin, 2012;Singleton-Green, 2015). On the other hand, limited research investigates the economic effects of adopting IFRS in developing countries (Lin, 2012;Herbert & Tsegba, 2013;Efobi Uchenna, 2016;Samaha & Khlif, 2016). It is argued that developing countries suffer from weak institutional infrastructure that may cause lower quality compliance with accounting standards (Stecher & Suijs, 2012). Consequently, the expected economic benefits of IFRS adoption is uncertain under weak compliance with the IFRS (Stecher & Suijs, 2012). This implies IFRS adoption in developing countries might not result in the appropriate accounting system (Tyrrall, Woodward, & Rakhimbekova, 2007). Therefore, although the prior study shows the overall positive effect of IFRS adoption, the outcome may not directly apply or less likely to be generalizable to developing countries (Lin, 2012;Mohammadrezaei et al., 2015). While there is no sufficient evidence to confirm that developing countries benefit from adopting the standards (Lin, 2012;Stecher & Suijs, 2012;Herbert & Tsegba, 2013;Efobi Uchenna, 2016;Samaha & Khlif, 2016), it is worthwhile to conduct further research on the impacts of IFRS adoption on FPI in the context of developing countries (Lin, 2012).
Since every country is different in terms of institutions, economics, and politics, many researchers suggest conducting research focusing more on specific settings such as an individual country (Daske, 2012;Brüggemann et al., 2013;De George et al., 2016;Efobi Uchenna, 2016;Houqe et al., 2016). This is because more controlled experiments are possible in a single country (or settings), which facilitates more precise identification. Also, proprietary data is more likely to become available in a single country that is necessary to establish direct causes and effects in empirical studies (Daske, 2012). Finally, country-specific or single-country research should increase the validity of the research outcome by enabling researchers to understand and control concurrent non-IFRS effects (Brüggemann et al., 2013;Singleton-Green, 2015;Efobi Uchenna, 2016;Houqe et al., 2016). In addition, it is observed that prior IFRS adoption literature are mainly concentrated on cross-country research (Daske, 2012). Therefore, future research should focus more on a single country setting to reveal the precise effect of IFRS adoption on FPI.
There is a substantial variation in accounting practice between countries even though they use the same accounting standards (Pricope, 2016). This is because the process of implementing accounting standards is not the same for all countries (Schipper, 2005;Kvaal and Nobes, 2012). In addition, differences in institutional settings also cause variation in interpretation and use of IFRS between countries (Schipper, 2005;Whittington, 2005;Pope & McLeay, 2011). These findings suggest that the implementation and level of compliance with IFRS standards vary between countries due to their institutional settings. Rationally, the expected effect of IFRS adoption will differ among jurisdictions. It is also evidenced that the benefits of IFRS are tied to some country-level factors (Tarca, 2012). Since the investors, assets allocation decision is affected by the level of investor protection, and investors prefer to invest in a country where investors' legal rights are strongly protected by law, future research should consider the effect of investor protection in relation to IFRS adoption and FPI.

CONCLUSION
Based on the existing empirical literature, this study investigates the effect of IFRS adoption on FPI regarding investor protection, focusing on developed vs. developing countries. It was revealed that the impacts of IFRS on FPI vary significantly between developed and developing countries. Although it is evidenced that FPI increased following IFRS adoption, there is limited evidence that IFRS adoption improved FPI in developing countries. The empirical research findings concerning the impact of IFRS adoption on FPI should be interpreted carefully with country-specific factors such as regulatory environment and investor protection. Empirical evidence regarding the effects of IFRS adoption on FPI is inadequate to make a conclusion regarding impacts of IFRS on FPI on developing country perspective.
Further research is required on this topic considering country-specific factors, particularly developing country perspectives