Financial Market Consequences of Early Adoption of International Standards on Auditing: International Evidence

Ibrahim Elmghaamez, Ali Gerged, Collins Ntim

Research output: Contribution to journalArticlepeer-review

10 Citations (Scopus)


This paper aims to investigate the effects of the early adoption of International Standards on Auditing (ISAs) on Financial Market Indicators (FMIs) from a diffusion of innovation (DOI) theory perspective.

Using panel data from 110 countries in a period that spans from 1995 to 2014, this study applies an ordinary least squares regression model to investigate the financial consequences of adopting ISAs. This analysis was supplemented with estimating a fixed-effects and two-stage least squares regression models to address any concerns regarding the possible existence of endogeneity problems.

This study reports three key findings. First, the authors find that early ISAs adoption has a negative effect on several financial market consequences, namely stock market integration, market capitalisation, market turnover, market return, market development, stock price volatility and stock trading volume. Second, using an alternative measure to the one that is proposed by DOI theory, the authors found that some financial indicators have been significantly improved after ISAs adoption, but only for listed firms that prepared their financial statements under International Financial Reporting Standards and audited by ISAs simultaneously. Finally, the financialindicators of European stock markets, however, have insignificantly shrank post the mandatory adoption of ISAs in 2006.

Practical implications
The empirical evidence raises questions about how ISAs were enforced and implemented. For example, countries that adopted ISAs at early stages may have been dominated mostly by recently established stock exchanges. This implies a crucial need to determine and apply the best type of auditing regime that can increase investors trust and enhance the credibility of stock markets information, which might ultimately advance the FMIs over time significantly.

To-date, studies investigating the impact of the adoption of ISAs on FMI from a DOI theory perspective are virtually non-existent. The study, therefore, seeks to contribute to the extant literature by examining the influence of ISAs adoption on a wide range of FMIs.
Original languageEnglish
Pages (from-to)819-858
Number of pages40
JournalManagerial Auditing Journal
Issue number6
Early online date6 Jul 2020
Publication statusPublished - 21 Jul 2020


  • Diffusion of innovation theory
  • Financial consequences
  • Financial market indicators
  • International standards on auditing
  • Stock markets

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)
  • Economics, Econometrics and Finance(all)


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