The Effects and Implications of Kazakhstan's Adoption of International Financial Reporting Standards. A Resource Dependence Perspective

We analyze Kazakhstan's strategic decision to become an early adopter of International Financial Reporting Standards (IFRS) and the consequences of this reform. Despite having a significantly underdeveloped supporting infrastructure, Kazakhstan was the first nation in the former Soviet Union (nowadays, CIS) to require IFRS in 2004. We depart from prior studies that almost exclusively relied on economic and legal explanations and adopt a novel framework to analyze the timing and strategy of this reform – the resource dependence theory of Pfeffer and Solancik (1978). Based on this framework, we argue that initially, in 1990s, Kazakhstan's capital market reforms mirrored those of Russia due to two countries' cooperating mode driven by a high level of resource interdependence and economic uncertainty, following the collapse of the Soviet Union. Nevertheless, by 2003, the dependence on external donors (IMF and World Bank) took precedence over the internal interdependence with Russia, and Kazakhstan unilaterally proceeded with adoption of IFRS, while Russia backed up from this initiative. Next, we find that reported information is value relevant to investors and that Kazakhstan's inflow of Foreign Direct Investments was the greatest among the CIS nations post adoption of IFRS. Importantly, Kazakhstan was the first CIS nation to repay the external debt ahead of schedule. Consequently, this risky strategy of pioneering Western-style capital market reforms in an emerging market with not so distant communist past had a significantly positive outcome