The Introduction of the Euro and its Impact on Firm Performance - the Evidence of Croatia

Abstract

This study examines the impact of the introduction of the euro on firm performance of non-financial firms listed on the Croatian capital market. Croatia adopted the euro as its sole legal tender on January 1, 2023, becoming the 20th member of the euro area. While the macroeconomic effects of euro adoption have been widely studied, its microeconomic implications, particularly on firm performance, remain underexplored. This research fills this gap by analyzing firm-specific determinants and their performance before and after euro adoption over 2019-2023. Using a sample of 25 non-financial companies listed on the Zagreb Stock Exchange, we employ panel data estimation techniques to evaluate the influence of euro adoption on corporate performance, incorporating variables such as firm size, leverage, firm openness or international sales, liquidity, and euro dummy variable. The results reveal that introducing the euro had a significant positive impact on firm performance, with implications for investment strategies and international competitiveness. This study is the first to investigate the euro's effect on firm performance in Croatia, offering valuable insights for policymakers and contributing to the broader literature on currency adoption and firm dynamics.