The Effect of Economic Integration on Accounting Comparability: Evidence from the Adoption of the Euro

35 Pages Posted: 30 Jun 2013  

Sudarshan Jayaraman

University of Rochester - Simon Business School

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

Date Written: June 28, 2013

Abstract

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.

Keywords: Accounting comparability, Euro, European Union, accounting standard, reporting incentives

JEL Classification: M41, G15

Suggested Citation

Jayaraman, Sudarshan and Verdi, Rodrigo S., The Effect of Economic Integration on Accounting Comparability: Evidence from the Adoption of the Euro (June 28, 2013). Available at SSRN: https://ssrn.com/abstract=2286699 or http://dx.doi.org/10.2139/ssrn.2286699

Sudarshan Jayaraman

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Rodrigo S. Verdi (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

Sloan School of Management
100 Main Street E62-666
Cambridge, MA 02142
United States
(617) 253 2956 (Phone)

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