Effects of IFRS Mandatory Adoption and Country-Specific Factors on Accounting Quality: Evidence from Italy

This paper aims at investigating how and whether the accounting information quality changes following IFRS implementation. The focus is on value relevance which is considered as one of the basic attributes of accounting quality. An empirical analysis is performed on a representative sample of 522 firm-year observations concerning Italian listed companies observed from 2001 to 2006. Data are analyzed by contrasting the pre-adoption period (2001-2004) with the post-adoption one (2005-2006) to test for a systematic change in value relevance induced by IFRS. Likewise, a sectoral analysis is performed to investigate if accounting quality differs with respect to the macro-sector of activity. Results confirm the expected overall increase in the value relevance under IFRS, particularly for firms operating in the Finance and Services sectors. The research also documents changes in Italy’s country-specific factors in the period surrounding IFRS adoption that may contribute to an improvement in accounting quality.