nep-acc New Economics Papers
on Accounting
Issue of 2005‒03‒13
eleven papers chosen by
Bernardo Batiz-Lazo
London South Bank University

  1. Performance Measurement, Expectancy and Agency Theory: An Experimental Study By Randolph Sloof; Mirjam van Praag
  2. Changes in the world distribution of output-per-worker 1960-98: how a standard decomposition tells an unorthodox story By ; Paul Beaudry; ; Fabrice Collard; ; David A. Green
  3. Updating the UK's code for fiscal stability By Carl Emmerson; Chris Frayne; Sarah Love
  4. GAPS IN “GAAP”: Issues in Nonprofit Accounting and Reporting in India By Gandhi Shailesh
  5. Foreign Investment, Corporate Ownership, and Development:Are Firms in Emerging Markets Catching Up to the World Standard? By Klara Sabirianova; Jan Svejnar; Katherine Terrell
  6. Passive Creditors By Koen Schoors; Konstantin Sonin
  8. How Does Law Affect Finance? An Empirical Examination of Tunneling in an Emerging Market By Vladimir Atanasov; Conrad S. Ciccotello; Stanley B. Gyoshev
  9. Banking Fragility and Disclosure: International Evidence By Solomon Tadesse
  10. Retained State Shareholding in Chinese PLCs: Does Government Ownership Reduce Corporate Value? By Lihui Tian; Saul Estrin
  11. Easing the Fiscal Restraints: New Revenue Tools in the City of Toronto Act By Enid Slack

  1. By: Randolph Sloof (Faculty of Economics and Econometrics, Universiteit van Amsterdam); Mirjam van Praag (Faculty of Economics and Econometrics, Universiteit van Amsterdam)
    Abstract: Theoretical analyses of (optimal) performance measures are typically performed within the realm of the linear agency model. An important implication of this model is that, for a given compensation scheme, the agent's optimal effort choice is unrelated to the amount of noise in the performance measure. In contrast, expectancy theory as developed by psychologists predicts that effort levels are increasing in the signal-to-noise ratio. We conduct a real effort laboratory experiment to assess the relevance of this prediction in a setting where all key assumptions of the linear agency model are met. Moreover, our experimental design allows us to control expectancy exactly as in Vroom's (1964) original expectancy model. In this setting, we find that effort levels are invariant to changes in the distribution of the noise term, i.e. to expectancy. Our results thus confirm standard agency theory and reject this particular aspect of expectancy theory.
    Keywords: Expectancy theory; agency theory; performance measurement; experiments
    JEL: J33 C91 D81
  2. By: ; Paul Beaudry; ; Fabrice Collard; ; David A. Green
    Abstract: Why have some countries done so much better than others over the recent past? In order to shed new light on this issue, this paper provides a decomposition of the change in the distribution of output-per-worker across countries over the period 1960-98. The main finding of the paper is that most of the change in shape of the world distribution of income between 1960-1998 can be accounted for by a very substantial and previously unrecognized change in the parameters driving the growth process. In particular, we show that the role of capital deepening forces - that is the role of investment rates and population growth in affecting output - increased dramatically over the period 1978-98 versus 1960-78, and that this increase can account for almost all the observed changes in the world distribution. In contrast, we do not find any significant effects coming through non-linear convergence mechanisms or increased importance of education; both of which have played prominent roles in recent discussion of economic performance. Our results therefore highlight that the period 1978-98 was particularly advantageous to countries which strongly favored capital accumulation and hence suggests that research aimed at understanding recent differences in economic performances across countries needs to focus on explaining why the social returns to physical capital accumulation where abnormally high over the period 1978-98.
    JEL: O33 O41
    Date: 2004–09
  3. By: Carl Emmerson (Institute for Fiscal Studies); Chris Frayne (Institute for Fiscal Studies); Sarah Love (Institute for Fiscal Studies)
    Abstract: The 1998 Code for Fiscal Stability sets out the framework within which UK fiscal policy is now set. While having such a code does not make it easier for a Government to meet its fiscal objectives, it may improve the economic credibility of the policy process. To date the Code has generally worked well, and in any case many of the Treasury’s practices exceed the minimum requirements of the Code. However, improvements could be made in the light of recent experiences. In particular it would be preferable for less emphasis to be placed on the precise forecasts for fiscal aggregates and greater emphasis to be placed on the magnitude of the risks to those forecasts. Using the projections contained in the March 2004 Budget, and information on the size of errors made in the past, we estimate that there is now a 60% chance that the Chancellor’s “golden rule” will be met without further tax increases or spending cuts. This compares to 74% for the forecast made by the Treasury 12 months earlier. As well as clarifying how cautious forecasts are, the uncertainty surrounding projections for fiscal aggregates also has implications for the way in which progress towards any fiscal rules should be interpreted.
    JEL: E62 H62
    Date: 2004–11
  4. By: Gandhi Shailesh
    Abstract: Nonprofit Organisations (NPOs) in India play an important role as change agents for social and economic development. Though they command substantial amounts of resources, their financial performance measurement and reporting is a major concern. In absence of a single regulatory authority and specific accounting standards for NPOs, the practices of accounting and reporting vary across organisations. Based on an exploratory study, this paper documents the current status on requirements of accounting and reporting vis-à-vis the current practices of NPOs, identifies the gaps, and proposes an action plan to bridge the gaps. The paper classifies the gaps in accounting and reporting under conceptual and institutional frameworks. In order to bridge the gaps in the conceptual framework, the paper recommends the need for developing a uniform accounting and reporting system for all NPOs that should start with conceptualizing information needs of the stakeholders and end with conceptualizing appropriate financial statements to meet these needs and, in the process, resolve any ambiguity in the accounting treatment of specific transactions. At an institutional level, the paper suggests consultative processes among various stakeholders to develop the proposed system and recommends a need for amendments in various Acts to implement it.
    Date: 2005–03–09
  5. By: Klara Sabirianova; Jan Svejnar; Katherine Terrell
    Abstract: Economic development implies that the efficiency of firms in developing countries is approaching that of firms in advanced economies. We examine the extent of this convergence in the Czech Republic and Russia, economies that represent alternative models of implementing development policies, often referred to as the Washington Consensus, that have promoted privatization, competition and foreign investment. We also test hypotheses positing that only firms near the efficiency frontier benefit from these policies and catch up. Using 1992-2000 panel data on virtually all industrial firms in each country, we find that privatization to domestic owners did not markedly improve the efficiency of firms; domestic firms are not catching up to the (world) efficiency standard given by foreign-owned firms; and the distance of the Russian firms to the efficiency frontier is much larger than that of the Czech firms and continued to grow for most firms beyond 1997 while remaining constant in the Czech Republic. Domestic firms closer to the frontier are not more likely to catch up than firms further from the frontier although foreign firms do exhibit this behavior. Foreign-owned firms are increasingly displacing domestic firms in the top deciles of the overall distribution of efficiency, due in part to slower “learning” by domestic firms, higher efficiency of foreign startups, and foreigners’ acquisitions of more efficient domestic firms. The two alternative implementations of the Washington Consensus policies have thus not enabled domestic firms to start catching up to the world standard.
    Keywords: efficiency, productivity, economic development, foreign direct investment, ownership, convergence, frontier, Czech Republic, Russia, Washington Consensus.
    JEL: C33 D20 G32 L20
    Date: 2005–01–01
  6. By: Koen Schoors; Konstantin Sonin
    Abstract: Creditors are often passive because they are reluctant to show bad debts on their own balance sheets. We propose a simple general equilibrium model to study the externality effect of creditor passivity. The model yields rich insights in the phenomenon of creditor passivity, both in transition and developed market economies. Policy implications are deduced. The model also explains in what respect banks differ from enterprises and what this implies for policy. Commonly observed phenomenons in the banking sector, such as deposit insurance, lender of last resort facilities, government coordination to work out bad loans and special bank closure provisions, are interpreted in our framework.
    Keywords: creditor passivity, bankruptcy, arrears, bad loans, bank closure
    JEL: G21 G28 G33 P5
    Date: 2005–01–01
  7. By: Laura Nyantung Beny
    Abstract: Despite the longstanding insider trading debate, there is little empirical research on insider trading laws, especially in a comparative context. The article attempts to fill that gap. I find that countries with more prohibitive insider trading laws have more diffuse equity ownership, more accurate stock prices, and more liquid stock markets. These findings are generally robust to controlling for measures of disclosure and enforceability and suggest that formal insider trading laws (especially their deterrent components) matter to stock market development. The article suggests further avenues of empirical research on the specific mechanisms through which insider trading laws might matter and the political economy of their adoption.
    Keywords: Insider trading law, Market efficiency, Ownership structure, Law and finance, Comparative capital markets
    JEL: K22 G14 G15 G18 G32
    Date: 2005–01–01
  8. By: Vladimir Atanasov; Conrad S. Ciccotello; Stanley B. Gyoshev
    Abstract: This paper documents that law affects finance in emerging markets through the methods used by controlling shareholders to “tunnel” wealth out of the firm. We find that Bulgarian securities law enabled financial tunneling via dilution and freeze-out tender offers. During the period 1999- 2001, about two-thirds of the 1,040 firms on the Bulgarian Stock Exchange were delisted. Freeze-out tender offers for minority shares averaged about 25% of the shares’ intrinsic value. Bulgarian securities law changes in 2002 made financial tunneling more costly for controlling shareholders. Subsequent increases in stock market valuations and liquidity suggest that controlling shareholders have shifted from financial tunneling to less value-destroying methods, such as transfer pricing, to extract wealth from firms.
    Keywords: Tunneling, freeze-out, controlling shareholders, appraisal rights, preemptive rights
    JEL: G34 K22
    Date: 2005–01–01
  9. By: Solomon Tadesse
    Abstract: Motivated by recent public policy debates on the role of market discipline in banking stability, I examine the impact of greater bank disclosure in mitigating the likelihood of systemic banking crisis. In a cross sectional study of banking systems across 49 countries in the 90s, I find that banking crises are less likely in countries with financial reporting regimes characterized by (i) comprehensive disclosure (ii) informative disclosure, (iii) timely disclosure and (iv) more stringent auditing.
    Keywords: Banking Crisis, Disclosure, Transparency, Audit Stringency
    JEL: G21 G28
    Date: 2005–02–01
  10. By: Lihui Tian; Saul Estrin
    Abstract: The role of government shareholding in corporate performance is central to an understanding of China’s newly privatized large firms. In this paper, we analyze shareholders as agents that can both harm and benefit companies. We examine the ownership structure of 826 listed corporations and find that government shareholding is surprisingly large. Its effect on corporate value is found to be negative, but non-monotonic. Up to a certain threshold, corporate value decreases as government shareholding stakes increase, but beyond this corporate value begins to increase. We interpret this in terms of ownership concentration and the advantages of government partiality.
    Keywords: government shareholding, corporate governance, China.
    JEL: G32 G34 G15 L33
    Date: 2005–02–01
  11. By: Enid Slack (Director, Institute on Municipal Finance and Governance, Munk Centre for International Studies)
    Abstract: This paper show that there is a mismatch between the expenditure responsibilities that the City of Toronto is required to undertake and the revenue tools available to it. Toronto relies mainly on property taxes, user fees, and intergovernmental transfers to finance a wide range of services. In the absence of a realignment of service responsibilities (in particular, uploading social services and social housing to the provincial level), the paper makes the case for a mix of taxes at the local level. A mix of taxes, particularly taxes that grow with the economy, would give the city more flexibility to respond to local conditions such as changes in the economy, evolving demographics, and expenditure needs. A mix of taxes would be more effective than the property at linking the costs and benefits of services when people commute to work from one jurisdiction to another. Although the city should piggyback onto existing provincial taxes to minimize administrative costs, it is argued that it should set its own tax rates to ensure autonomy, accountability, and predictability of revenues.
    Keywords: urban finance, local taxation
    JEL: H71

This nep-acc issue is ©2005 by Bernardo Batiz-Lazo. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.