The Effect of Economic Integration on Accounting Comparability: Evidence from the Adoption of the Euro
Simon Business School, University of Rochester
Rodrigo S. Verdi
Massachusetts Institute of Technology (MIT)
June 28, 2013
We examine the effect of economic integration on accounting comparability. Using the adoption of the euro as a shock to economic integration, we document two effects. First, we show a direct effect around the adoption of the euro – accounting comparability increases among industries in adopting countries relative to those in non-adopting ones and this effect is driven by increases in arm’s length financing. Second, economic integration also has an interactive effect, by influencing the effect of accounting standards harmonization (proxied by IFRS adoption) on accounting comparability. Specifically, the effect of IFRS adoption on accounting comparability is approximately three times larger for euro members than it is for non-euro members. Our paper highlights the role of economic integration and its interplay with accounting standards harmonization in shaping accounting comparability.
Number of Pages in PDF File: 35
Keywords: Accounting comparability, Euro, European Union, accounting standard, reporting incentives
JEL Classification: M41, G15
Date posted: June 30, 2013
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