nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2006‒09‒11
three papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The Economic Consequences of IFRS: The Impact of IAS 32 on Preference Shares in the Netherlands By Jong, A. de; Rosellón, M.; Verwijmeren, P.
  2. The Equity Trap, the Cost Capital and the Firm´s Growth Path By Lindhe, Tobias; Södersten, Jan
  3. The Impact of Client Expertise, Client Gender and Auditor Gender on Auditors' Judgments By Nöteberg, A.; Hunton, J.E.; Gomaa, M.

  1. By: Jong, A. de; Rosellón, M.; Verwijmeren, P. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The consequences of international accounting standards are likely to reach beyond the impact on financial statements. This paper demonstrates one of the economic implications of international standards. We focus on the impact of the IFRS regulation on preference shares (IAS 32) in the Netherlands. IAS 32 causes most preference shares to lose their classification as equity and these shares will hence be classified as liabilities. We document that for Dutch firms with preferred stock outstanding, the reclassification will on average increase the reported debt ratio by 35%. We find that 71% of the firms that are affected by IAS 32 buy back their preference shares or alter the specifications of the preference shares in such a way that the classification as equity can be maintained. The main determinant of the decision whether to give these consequences to IAS 32 is the magnitude of the impact of IAS 32 on a firm’s debt ratio. We conclude that IFRS does not only lead to a decrease in the use of financial instruments that otherwise would have added to the capital structure diversity, but also changes firms’ real capital structure.
    Keywords: Economic Consequences;Accounting Changes;IFRS;IAS 32;Preference Shares;Magnitude Effect;
    Date: 2006–05–08
  2. By: Lindhe, Tobias (Finansdepartementet); Södersten, Jan (Department of Economics)
    Abstract: This paper reconsiders Sinn’s (1991) nucleus theory of the corporation by comparing two different regimes for the equity trap. In the first of these, all cash paid to the shareholders is taxed as dividends, in the second, shareholders are allowed a tax-free return of capital contributed through new issues. A substantial difference is found between the regimes in the seize of initial equity injections, although in both regimes, no dividends are paid until a new long-run equilibrium is reached. Contrary to Sinn, we find that with optimal behavior, the cost of new equity is lower than suggested by conventional formulae.
    Keywords: dividend taxation; equity trap; cost of capital; nucleus theory; growth path
    JEL: H24 H25 H32
    Date: 2006–09–05
  3. By: Nöteberg, A.; Hunton, J.E.; Gomaa, M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The purpose of the current study is to assess the extent to which auditors’ judgments are affected by client expertise, client gender and auditor gender. Prior audit research suggests that auditors place more weight on evidence received from clients who possess higher, relative to lower, expertise (Anderson et al. 1994b; Bamber 1983; Hirst 1994; Margheim 1986; Rebele et al. 1988). We extend this line of research by suggesting that client expertise interacts with client gender during the auditor-client inquiry process, and examining the degree to which male and female auditors respond differently to these two source attributes. A total of 158 experienced auditors participated in a between-participants experiment with two manipulated variables (client expertise - low or high; client gender - male or female) and one measured variable (auditor gender - male or female). In a client-inquiry scenario, the auditors exhibited greater belief revision when the client possessed relatively higher expertise and when the client was male. A significant three-way interaction suggests that when client expertise was high, relative to low, the male favorability bias was reduced for male auditors; however, surprisingly, the bias was increased for female auditors. Post-experiment debriefing items indicate that male (female) auditors believe that male managers inherently possess a higher (similar) level of managerial ability. Comparing the managerial ability findings to the behavioral responses suggests a potential disconnect between the female auditors’ beliefs and actions. Since one of the hallmarks of the audit profession lies in the concept of objectivity, the results of this study indicate that audit researchers and practitioners need to better understand the implications of negative gender stereotypes toward women managers.
    Keywords: Gender Stereotypes;Client Expertise;Client Gender;Auditor Gender;
    Date: 2006–06–30

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