The Effects of the European Debt Crisis on Earnings Quality

Posted: 21 Jul 2016

See all articles by Dimitrios V Kousenidis

Dimitrios V Kousenidis

Aristotle University of Thessaloniki - Law, Economic and Political Sciences; Aristotle University of Thessaloniki

Anestis Ladas

University of Macedonia - Accounting and Finance

Christos Negakis

University of Macedonia

Date Written: 2013

Abstract

The present study examines whether and to what extent the recent crisis in the European Union (EU) had an impact on the quality of the reported earnings of listed firms in countries with weak fiscal sustainability (Spain, Greece, Ireland, Italy, and Portugal) — countries that have been forced to apply harsh austerity measures and are practically under financial supervision by EU authorities. This study also examines whether incentives for earnings management, probably induced by the crisis, have led to differential effects in earnings quality. The earnings quality attributes examined include value relevance, timeliness, conditional conservatism, smoothing, management, persistence, and predictability. The reported results show that during the crisis, the change in most determinants of earnings quality favors higher earnings quality. However, the results also suggest that in the case of firms that exhibit the biggest discretionary accruals over a single period, most of the earnings quality attributes signal a decrease in earnings quality. These results persist, even when using controls for extremely poor performance. Therefore, the results of this study indicate that, on average, earnings quality has improved in the crisis period; however, in the presence of incentives for earnings management, earnings quality deteriorates.

Keywords: Earnings Quality, European Crisis, Incentives for Earnings Management, IFRS

JEL Classification: M41

Suggested Citation

Kousenidis, Dimitrios V and Kousenidis, Dimitrios V and Ladas, Anestis and Negakis, Christos, The Effects of the European Debt Crisis on Earnings Quality (2013). International Review of Financial Analysis, Vol. 30, 2013, Available at SSRN: https://ssrn.com/abstract=2812309

Dimitrios V Kousenidis (Contact Author)

Aristotle University of Thessaloniki - Law, Economic and Political Sciences ( email )

School of Economics and Political Sciences
Department of Economics
Thessaloniki, 54124
Greece

Aristotle University of Thessaloniki ( email )

School of Economics and Political Sciences
Department of Economics
Thessaloniki, 54124
Greece

Anestis Ladas

University of Macedonia - Accounting and Finance ( email )

156 Egnatia Str.
Thessaloniki, 54006
Greece

Christos Negakis

University of Macedonia ( email )

156 Egnatia St.
P.O. 1591
Thessaloniki, 54006
Greece

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
384
PlumX Metrics