nep-acc New Economics Papers
on Accounting
Issue of 2005‒03‒20
seven papers chosen by
Bernardo Batiz-Lazo
London South Bank University

  1. Optimal Auditing Standards By Giovanni Immordino; Marco Pagano
  2. Are 'soft' policy instruments effective? The link between environmental management systems and the environmental performance of companies By Julia Hertin; Frans Berkhout; Marcus Wagner; Daniel Tyteca
  3. Are Asset Price Guarantees Useful for Perventing Sudden Stops?: A Quantitative Investigation of the Globalization Hazard-Moral Hazard Tradeoff By Ceyhun Bora Durdu; Enrique G. Mendoza
  4. Special Purpose Vehicles and Securitization By Gary Gorton; Nicholas Souleles
  5. Outsourcing Price Decisions: Evidence from U.S. 9802 Imports By Deborah Swenson
  6. Corporate Taxation and Bilateral FDI with Threshold Barriers By Assaf Razin; Yona Rubinstein; Efraim Sadka
  7. The emergence of large shareholders in mass privatized firms: Evidence from Poland and the Czech Republic By Irena Grosfeld; Iraj Hashi;

  1. By: Giovanni Immordino (Università di Salerno and CSEF); Marco Pagano (Università di Napoli "Federico II", CSEF and CEPR)
    Abstract: We study regulation of the auditing profession in a model where audit quality is unobservable and enforcing regulation is costly. The optimal audit standard falls short of the first-best audit quality, and is increasing in the economy’s wealth, in the riskiness of firms and in the amount of funding they seek. The model can encompass collusion between clients and auditors, arising from the joint provision of auditing and consulting services: deflecting collusion requires less ambitious standards. The optimal audit standard depends also on the corporate governance of client firms: audit standards and corporate governance are complements. Finally, banning the provision of consulting services by auditors eliminates collusion but may not be optimal in the presence of economies of scope.
    Keywords: Auditing standards, enforcement, opinion shopping.
    JEL: G28 K22 M42
    Date: 2005–03–01
  2. By: Julia Hertin (SPRU, University of Sussex); Frans Berkhout (SPRU, University of Sussex); Marcus Wagner (2Centre for Sustainability Management, University of Luneberg); Daniel Tyteca (Universite Catholique de Louvain, Institut d'Administration et de Gestion)
    Abstract: Based on the analysis of a large dataset on the environmental performance of European companies in selected industrial sectors, the paper examines the question of whether the presence of an environmental management system (EMS) has a positive impact on the ecoefficiency of companies. It begins with a review of current evidence about the link between EMS and environmental performance, finding that despite much research into EMS there is still very little quantitative research on their actual environmental outcome. The second part of the paper uses three different statistical methods to assess whether companies and production sites with EMS perform better than those without and whether performance improves after an EMS has been introduced. Identifying only a weak link between EMS and eco-efficiency, the authors propose a number of possible explanations and warn against an overly-positive view of EMS as an autonomous driver of environmental performance.
    Keywords: environmental management systems, environmental performance, eco-efficiency
    JEL: Q5
    Date: 2004–09–01
  3. By: Ceyhun Bora Durdu; Enrique G. Mendoza
    Abstract: The globalization hazard hypothesis maintains that the current account reversals and asset price collapses observed during 'Sudden Stops' are caused by global capital market frictions. A policy implication of this view is that Sudden Stops can be prevented by offering global investors price guarantees on emerging markets assets. These guarantees, however, introduce a moral hazard incentive for global investors, thus creating a tradeoff by which price guarantees weaken globalization hazard but strengthen international moral hazard. This paper studies the quantitative implications of this tradeoff using a dynamic stochastic equilibrium asset-pricing model. Without guarantees, distortions induced by margin calls and trading costs cause Sudden Stops driven by Fisher's debt-deflation mechanism. Price guarantees prevent this deflation by introducing a distortion that props up foreign demand for assets. Non-state-contingent guarantees contain Sudden Stops but they are executed often and induce persistent asset overvaluation. Guarantees offered only in high-debt states are executed rarely and prevent Sudden Stops without persistent asset overvaluation. If the elasticity of foreign asset demand is low, price guarantees can still contain Sudden Stops but domestic agents obtain smaller welfare gains at Sudden Stop states and suffer welfare losses on average in the stochastic steady state.
    JEL: F41 F32 E44 D52
    Date: 2005–03
  4. By: Gary Gorton; Nicholas Souleles
    Abstract: Firms can finance themselves on- or off-balance sheet. Off-balance sheet financing involves transferring assets to "special purpose vehicles" (SPVs), following accounting and regulatory rules that circumscribe relations between the sponsoring firm and the SPVs. SPVs are carefully designed to avoid bankruptcy. If the firm's bankruptcy costs are high, off-balance sheet financing can be advantageous, especially for sponsoring firms that are risky. In a repeated SPV game, firms can "commit" to subsidize or "bail out" their SPVs when the SPV would otherwise not honor its debt commitments. Investors in SPVs know that, despite legal and accounting restrictions to the contrary, SPV sponsors can bail out their SPVs if there is the need. We find evidence consistent with these predictions using data on credit card securitizations.
    JEL: G3 G2 E5 K2
    Date: 2005–03
  5. By: Deborah Swenson
    Abstract: This paper studies U.S. overseas assembly imports to identify whether factors related to information or search costs appear to condition outsourcing decisions. The data for 1991-2000 show that U.S. overseas assembly imports were characterized by incomplete pass-through of production and trade costs to import prices, though products assembled in more highly educated countries passed-through a much larger portion of their cost changes. In addition, the price of outsourcing imports responded to competing suppliers' prices, with the largest responses occurring for products in capital-intense industries. These differential price responses suggest that information issues play an important role in the mediation of outsourcing relationships.
    JEL: F1 F2
    Date: 2005–03
  6. By: Assaf Razin; Yona Rubinstein; Efraim Sadka
    Abstract: The paper brings out the special mechanism through which taxes influence bilateral FDI, when investment decisions are two-fold in the presence of fixed setup flows costs. For each pair of source-host countries, there is a set of factors determining whether aggregate FDI flows will occur at all, and a different set of factors determimnig the volume of FDI flows (provided that they occur). We demonstrate that the notion that the mere international tax differetials are a key factor behind the direction and magnitude of FDI flows is too simple. We argue that the source country tax rate works primarely on the selection process, whereas the host-country tax rate affect mainly the magnitude of the FDI, once they occur. We analyze international panel data with 24 OECD countries over the period 1981-1998 by the Heckman selection method to bring evidence in support of this argument.
    JEL: F3 H2 F1
    Date: 2005–03
  7. By: Irena Grosfeld; Iraj Hashi;
    Abstract: Mass privatization offers a particularly suitable framework to study the change in ownership concentration as the extent of change is unusual for a stable market economy. Focusing on two different mass privatization schemes in two transition economies, Poland and the Czech Republic, we find that despite important differences in the design of the two programmes and despite different quality of legal and regulatory framework, ownership structure in the two countries has rapidly evolved and the emerging ownership patterns are remarkably similar. This suggests that private benefits of control are large and the quality of investor protection regime is low in both countries. However, looking at the relationship between the change in ownership concentration and firm performance, we find an interesting difference between the two countries: in the Czech Republic the increase in ownership concentration seems to be less likely in poorly performing firms while in Poland the quality of past performance does not affect investors' willingness to increase their holdings. This effect may be interpreted in the light of the theory stressing the importance of the quality of investors' protection. It could be argued that if Czech investors are more risk averse and more concerned with diversification this is largely due to the weakness of the legal protection they face.
    Keywords: ownership concentration, mass privatisation, corporate governance, transition
    JEL: G3 L2 P3 P5
    Date: 2004–08–01

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