Impact of Cost of Capital on European Economic Growth: The Role of IFRS Mandatory Adoption

Since 2005, the International Financial Reporting Standards (IFRS) mandatory adoption in the European Union has played a pivotal role to reduce financing costs which has influenced positively economic growth across member states. Thus, this study examines the effect of Cost of Capital on Economic Growth under IFRS mandatory adoption in 17 European countries between 1994 and 2021 using Pooled Mean Group Autoregressive Distributed Lag (PMG-ARDL) and System Generalized Method of Moments (GMM-system) methods. The findings reveal a positive correlation between the Cost of Capital and Economic Growth under IFRS adoption. Specifically, the model estimates indicate that the Cost of Capital contributes to a 0.58% increase in Economic Growth in the PMG-ARDL framework. Moreover, the GMM-system model underscores the significance of IFRS adoption in reducing the Cost of Capital, leading to a 0.52% increase in Economic Growth. These results provide insights into the benefits of adopting international accounting standards and highlight the importance of institutional and financial factors in shaping the economic impact of adopting accounting standards

Do IFRS disclosure requirements reduce the cost of equity capital? Evidence from European firms

This study analyzes the impact of adopting International Financial Reporting Standards (IFRS) on the cost of equity capital for firms listed on STOXX Europe 600 using a sample of 9773 firm-year observations between 1994 and 2022. We estimate the cost of equity capital using the modified price–earnings–growth ratio model and employ the GMM system to investigate the effect of IFRS Standards on the cost of equity capital. Our results indicate that IFRS adoption reduces firms’ cost of equity capital. We performed various sensitivity analyses to ensure the reliability of our results. Overall, this study contributes to the extant literature on the cost of equity capital implications of IFRS adoption and provides valuable insights for investors, regulators, and policymakers

Smooth transition regression model relating inflation to economic growth in Tunisia

Abstract Since its independence, Tunisia has embarked on monetary and financial sector reforms aimed at boosting economic growth. However, these reforms have not been effective due to inflation pressures in this country. Thus, this paper examines the nature of the relationship between financial development and economic growth between 1965 and 2019, using the non-linear logistic smooth transition regression model and considering inflation as a threshold financial development. The results show the existence of a non-linear abrupt relationship with an inflation threshold equal to 3.63%. Specifically, when inflation is below 3.63%, all variables, including inflation, have a significant and positive impact on economic growth. However, when inflation exceeds the estimated threshold, inflation has a significant and negative impact with an elasticity equal to − 0.365. To effectively manage inflation, the Tunisian authorities are encouraged to set and embrace specific inflation targets as a goal. This approach aims to mitigate inflationary pressures and foster a favourable environment for financial development in Tunisia, thereby promoting economic growth. Hence, it becomes imperative to implement such measures that alleviate inflationary pressures and drive economic growth through the facilitation of development finance by the banking sector

Geopolitical risk, financial development, and renewable energy consumption: empirical evidence from selected industrial economies

The rapid rise in climate and ecological challenges have allowed policymakers to introduce stringent environmental policies. In addition, financial limitations may pose challenges for countries looking to green energy investments as energy transition is associated with geopolitical risks that could create uncertainty and dissuade green energy investments. The current study uses PTR and PSTR as econometric strategy to investigate how geopolitical risks and financial development indicators influence energy transition in selected industrial economies. Our findings indicate a non-linear DCPB-RE relationship with a threshold equal to 39.361 in PTR model and 35.605 and 122.35 in PSTR model. Additionally, when the threshold was estimated above, financial development indicators and geopolitical risk positively impacts renewable energy. This confirms that these economies operate within a geopolitical context, with the objective of investing more in clean energy. We report novel policy suggestion to encourage policymakers promoting energy transition and advance the sustainable financing development and ecological sustainability