VI. Conclusion
We develop and test the hypothesis that network effects are a significant factor in the time-series growth in IFRS harmonization across countries. Network effects refer to perceived lower transactions costs given the community of IFRS adopters worldwide. We find the degree of IFRS harmonization in a country is an increasing function of the perceived value of its IFRS network. The results suggest IFRS adoption is self-reinforcing, although our evidence also suggests that a significant proportion of perceived network benefits accrue from IFRS adoption by just EU and EEA member-states. In cross-sectional tests, we explore how a country’s economic size is likely to affect the relation between network benefits and IFRS harmonization. We find evidence consistent with network effects mattering more to countries with smaller GDPs. Our evidence implies that countries with low bargaining power are more susceptible to adopting IFRS because others are doing so, consistent with such countries being less distinctive in their approach to IFRS harmonization. Ironically, low bargaining power countries (i.e., countries with lower GDP) also tend to have weak market institutions, implying IFRS implementation in these countries is less likely to be effective.