Euro adoption and the quality of accounting information

Abstract

Purpose

The purpose of this paper is to consider the impact of the drachma's replacement by the euro on the quality of accounting information published by Greek listed firms.

Design/methodology/approach

The authors examined how the adoption of the euro currency impacted on the timeliness of income recognition and the relevance of accounting information during the pre and post euro adoption periods using a sample of 176 listed firms over the period 1995‐2008.

Findings

Convincing evidence was found that the euro contributed to a decrease on the value relevance of accounting information, an increase in the conservatism of financial statements and finally a reduction in the earnings management behavior of managers.

Practical implications

By considering the impact of the common currency on the quality of accounting information, analysts are more able to provide accurate estimates on firms' future prospects, thus contributing to less information asymmetries among stock market participants.

Social implications

The results could be proved useful to regulators since they indicate that financial accounting information prepared after the adoption of the euro currency has inferior value relevance. Therefore, if regulators want to develop an efficient financial market they need to address this effect by developing relative legislation that promotes the quality of accounting information.

Originality/value

The majority of studies on the issue of the euro have focused on matters of macroeconomic stability, corporate investments and valuation and market integration. No research until now has studied the impact of euro adoption on the quality of accounting information and how accounting quality is perceived by market participants during the pre and post‐euro adoption periods.

Citation

Dimitropoulos, P.E., Asteriou, D. and Siriopoulos, C. (2012), "Euro adoption and the quality of accounting information", Managerial Auditing Journal, Vol. 27 No. 3, pp. 299-328. https://doi.org/10.1108/02686901211207519