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This study examines the impact of Strength of Audit and Reporting Standards (SARS) on Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) across 84 countries (2007–2017). SARS enhances transparency, reduces information asymmetry, and fosters investment efficiency, boosting investor confidence. Using Compound Annual Growth Rate (CAGR), clustering methods, and regression analysis, the study evaluates how governance quality shapes investment flows. The findings reveal SARS significantly influences portfolio investments, attracting higher FPI through better governance, while its effect on FDI is weaker due to FDI’s reliance on long-term factors like market size and resources. Clustering analysis highlights that developed economies with robust SARS consistently attract investments, whereas resource-dependent nations with weaker governance face challenges despite their natural wealth. Strengthening SARS through international standards, enforcement, and region-specific reforms is crucial for attracting foreign investments and fostering economic resilience. For investors, SARS is a reliable indicator of market stability, particularly for guiding portfolio investments. SARS plays a pivotal role in shaping global investment patterns, especially FPI, making its improvement essential for sustainable growth and investor confidence.
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