Investigating the relationship between international financial reporting standards and income inequality according to the role of financial development: a selection of developing countries in Asia

Document Type : Research Paper

Authors

1 Yazd University, Yazd, Iran

2 Accounting,Shahid Chamran University of Ahvaz, Iran

10.22051/ieda.2024.46800.1408

Abstract

Income inequality remains a concern. Previous studies show that with the growth of a country's economy, incomes increase and income disparity decrease. However, there is evidence that income inequality worsens as countries develop. This study examines the relationship between International Financial Reporting Standards (IFRS) and income inequality with regard to the moderating role of financial development for a selection of Asian developing countries in the period 2000-2022 and using Ordinary Least Squares and Generalized Least Squares methods. The results show that financial development affects the relationship between IFRS and income inequality. Furthermore, there is a direct relationship between IFRS and income inequality. One of the reasons for the direct impact of IFRS on income inequality can be that the increased transparency of financial reporting as a result of the use of IFRS enables employees and regulatory organizations to negotiate with employers about employment-related issues such as job security, wages, and pensions. If these negotiations lead to benefits for employees, income inequality will decrease. The indirect effect of IFRS on income inequality through financial development may be because investment increases by improving the efficiency of financial markets and reducing the financial constraints of financial institutions.

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