Financial crisis and accounting quality: Evidence from five European countries

George Iatridis, Augustinos I. Dimitras

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This study investigates how the economic crisis affects the scope for earnings manipulation and the value relevance of reported financial numbers for companies that are audited by a big 4 auditor. The analysis is focused on Portuguese, Irish, Italian, Greek and Spanish listed companies. The findings show that Portugal, Italy and Greece tend to engage more in earnings management in their effort to improve their lower profitability and liquidity, and accommodate their higher debt and growth. Ireland exhibits less evidence of earnings manipulation, while the findings for Spain are to some extent conflicting. Additionally, the reported financial numbers of Portuguese and Greek companies that are audited by a big 4 auditor were found to be of higher quality before the crisis. In contrast, Irish, Italian and Spanish companies report more value relevant financial numbers during the crisis. The results of this study are particularly useful for accounting regulators when preparing accounting rules that seek to reduce information asymmetry and earnings manipulation and increase the quality of reported disclosures in light of a crisis and for investors that need further assistance for the establishment of a profitable investment strategy in periods characterized by high uncertainty and volatility.

    Original languageEnglish
    Pages (from-to)154-160
    Number of pages7
    JournalAdvances in Accounting
    Volume29
    Issue number1
    DOIs
    Publication statusPublished - Jun 2013

    Keywords

    • Big 4 auditing
    • Earnings management
    • Economic crisis
    • M41
    • Value relevance

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