The impact of IFRS on the relationship between financial reporting quality and investment efficiency: Evidence from a transitioning accounting and regulatory environment

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Abstract

Financial reporting quality (FRQ) is widely recognized as essential for mitigating information asymmetry and enhancing firms’ investment decisions. Yet in emerging economies undergoing major accounting transitions, empirical evidence remains mixed and often inconclusive (Biehl et al., 2024; Alruwaili et al., 2023). This study examines whether FRQ promotes investment efficiency and assesses the role of International Financial Reporting Standards (IFRS) adoption, particularly voluntary early adoption, in shaping this relationship. Using panel data for 130 non-financial listed firms from 2017 to 2023 and estimating fixed-effects models (FEM) with extensive robustness checks, we document a strong positive association between FRQ and investment efficiency, driven by reductions in both overinvestment and underinvestment. Although early IFRS adoption does not mechanically raise FRQ, firms adopting IFRS exhibit a markedly stronger FRQ-investment efficiency relationship, indicating that IFRS enhances the decision-usefulness of credible financial information. These findings underscore that the benefits of IFRS are context-specific and conditioned by institutional transition. The study provides practical insights for regulators and investors by identifying when and how IFRS adoption can reinforce reporting quality and foster more efficient capital allocation.

Keywords: Financial Reporting Quality, Investment Efficiency, IFRS Adoption, Vietnam

Authors’ individual contribution: Conceptualization — T.N.D. and C.T.H.D.; Methodology — C.T.H.D.; Validation — C.T.H.D.; Formal Analysis — C.T.H.D.; Investigation — T.N.D., C.T.H.D., N.P.C.L., P.T.N., and Q.H.T.; Resources — T.N.D.; Data Curation — C.T.H.D., N.P.C.L., P.T.N., and Q.H.T.; Writing — Original Draft — C.T.H.D., N.P.C.L., P.T.N., and Q.H.T.; Writing — Review & Editing — T.N.D., C.T.H.D., N.P.C.L., P.T.N., and Q.H.T.; Visualization — P.T.N. and N.P.C.L.; Supervision — T.N.D.; Project Administration — T.N.D.; Funding Acquisition — T.N.D.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G30, M40, M41, 016

Received: 25.08.2025
Revised: 10.12.2025; 05.03.2026
Accepted: 19.03.2026
Published online: 23.03.2026

How to cite this paper: Doan, T. N., Dang, C. T. H., Le, N. P. C., Nguyen, P. T., & Tran, Q. H. (2026). The impact of IFRS on the relationship between financial reporting quality and investment efficiency: Evidence from a transitioning accounting and regulatory environment. Journal of Governance and Regulation, 15(2), 165–177. https://doi.org/10.22495/jgrv15i2art14