nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2006‒10‒07
ten papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Reforming the Taxation of Multijurisdictional Enterprises in Europe, a Tentative Appraisal By Marcel Gérard
  2. Cross listing and firm value - corporate governance or market segmentation? An empirical study of the stock market By Ji, Gang
  3. FLAT TAX REFORMS IN THE U.S.: A BOON FOR THE INCOME POOR By Javier Díaz-Giménez; Josep Pijoan-Mas
  4. A Simple Explanation for the Unfavorable Tax Treatment of Investment Costs By Paolo Panteghini
  5. The Impact of Thin-Capitalization Rules on Multinationals' Financing and Investment Decisions By Thiess Buettner; Michael Overesch; Ulrich Schreiber; Georg Wamser
  6. Can Capital Income Taxes Survive? And Should They? By Peter Birch Sørensen
  7. The accrual anomaly – focus on changes in specific unexpected accruals results in new evidence. By Schøler, Finn
  8. Identifying Strategic Interactions in Swedish Local Income Tax Policies By Edmark, Karin; Ågren, Hanna
  9. Probability of default models of Russian banks By Peresetsky, Anatoly A.; Karminsky , Alexandr A.; Golovan , Sergei V.
  10. Banks’ Riskiness Over the Business Cicle: a Panel Analysis on Italian Intermediaries By Mario Quagliariello

  1. By: Marcel Gérard
    Abstract: In 2001, the European Commission proposed replacing the current system of taxation of multinational companies by the taxation of a consolidated base, computed at the level of all the European entities of a multijurisdictional enterprise, and then distributed for taxation purposes between the various jurisdictions in which these entities operate, according to pre-established criteria. In this paper, we propose a tentative appraisal of that reform based on a case study and an analytical exercise. We especially focus on two related issues, the choice of the formula and the composition of the consolidating area – either the entire EU or some Member States within an Enhanced Cooperation Agreement –, and on their impact on the size and interjurisdictional distribution of tax revenue and social welfare, and on the intensity of tax competition. Our tentative policy conclusion is that this paper supports the reform provided that (1) the formula puts emphasis on criteria that the firm may not too easily manipulate, (2) the activities of the multijurisdictional enterprise are enough mobile, (3) the consolidation is made compulsory within the consolidating area, and (4) the consolidating area protects its capacity to actually levy tax by adopting a crediting system vis-à-vis the rest of the world.
    Keywords: multinational enterprises, multinational companies, multijurisdictional enterprises, European taxation, tax consolidation, tax competition
    JEL: H32 H73 H87
    Date: 2006
  2. By: Ji, Gang (BOFIT)
    Abstract: This study investigates the economic consequences of cross-listing on the Chinese stock market. We argue that by adopting a higher disclosure standard through cross- listing firms voluntarily commit themselves to reducing information asymmetry. As a result, cross-listed firms are able to benefit from growth opportunities with less appropriated cash flow and lower cost of capital. The empirical evidence shows that cross-listed firms indeed command higher valuations than their non-cross-listed counterparts, after controlling for certain firm-specific attributes. This lends support to the corporate governance hypothesis of cross-listing on the Chinese stock market. The study also argues that an overall upgrad-ing of accounting standards cannot substitute for the cross-listing mechanism.
    Keywords: corporate governance; listing; China
    Date: 2005–11–11
  3. By: Javier Díaz-Giménez; Josep Pijoan-Mas (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: In this article we queantify the aggregate, distributional and welfare consequences of two revenue neutral flat-tax reforms using a model economy that replicates the U.S. distributions of earnings, income and wealth in very much detail. We find that the less progressive reform brings about a 2.4 percent increase in steady-state output and a more unequal distribution of after-tax income. In contrast, the more progressive reform brings about a -2.6 percent reduction is steady-state output and a distribution of aftertax income that is more egalitarian. We also find that in the less progressive flat-tax economy aggregate welfare falls by -0.17 percent of consumption, and in the more progessive flat-tax economy it increases by 0.45 percent of consumption. In both flat-tax refoms the income poor pay less income taxes and obtain sizeable welfare gains.
    Keywords: Flat-tax reforms, efficiency, inequality, earnings distribution, income distributions, wealth distribution.
    JEL: D31 E62 H23
    Date: 2006–07
  4. By: Paolo Panteghini
    Abstract: The evidence shows that in most countries the present value of depreciation allowances is less than 100% of the cost of capital. In this article we use a real-option model with debt financing, and show that less favorable depreciation allowances are offset by tax benefits arising from debt financing. Allowing partial deduction of capital cost is thus a necessary condition for investment neutrality to hold.
    Keywords: capital structure, irreversibility, real options and taxation
    JEL: D92 G33
    Date: 2006
  5. By: Thiess Buettner (Ifo Institute for Economic Research, Poschingerstr. 5, D-81679 Munich, Mannheim, Germany); Michael Overesch (ZEW, L 7,1 D-68161 Mannheim, Postfach 103443 D-68034); Ulrich Schreiber (Mannheim University and ZEW, Mannheim Business School, L 5, 6, 68131 Mannheim, Deutschland); Georg Wamser (Ifo Institute for Economic Research, Poschingerstr. 5, D-81679 Munich, Mannheim, Germany)
    Abstract: This paper analyzes the role of Thin-Capitalization rules for capital structure choice and investment decisions of multinationals. A theoretical analysis shows that the imposition of such rules tends to affect not only the leverage and the level of investment but also their tax-sensitivity. An empirical investigation of leverage and investment reported for affiliates of German multinationals in 24 countries in the period between 1996 and 2004 offers some support for the theoretical predictions. While Thin-Capitalization rules are found to be effective in restricting debt finance, investment is found to be more sensitive to taxes if debt finance is restricted.
    Keywords: Corporate Income Tax, Multinationals, Leverage, Thin-Capitalization Rules, Firm-Level Data
    JEL: H25 H26 G32
    Date: 2006–09
  6. By: Peter Birch Sørensen
    Abstract: The paper surveys some main results in the theory of capital income taxation in the open economy; reviews recent trends in international taxation, and discusses alternative blueprints for fundamental capital income tax reform from the perspective of an open economy faced with growing mobility of capital income tax bases.
    JEL: H21 H25
    Date: 2006
  7. By: Schøler, Finn (Department of Management Science and Logistics, Aarhus School of Business)
    Abstract: This paper deals with the accrual anomaly first documented by Sloan (1996), i.e. the finding that the stock market prices appear to overweigh the role of accruals persistence and under-weigh the role of operating cash flow persistence. In an analysis based on Danish financial statement data it is demonstrated that different specific components of earnings have significantly different earnings persistence characteristics and that these differences are not fully reflected in share prices. <p> In the analysis presented here the earnings persistence effect of two particular unexpected accrual components are specifically analyzed, namely the unexpected inventory accrual component and the unexpected accounts receivable accrual component, i.e. changes in accruals not motivated by corresponding changes in company activity-level. Additionally and for comparison, the accounting accruals are split into expected and unexpected accruals, estimated by the extended Jones model like in both some US-analyses and some international studies of the accrual anomaly phenomenon. <p> It is found that the persistence of earnings is decreasing in the magnitude of the unexpected accrual components of earnings and that the persistence of current earnings performance is particularly decreasing in the magnitude of unexpected changes in inventory. The special accrual parts are related to the perceptions of earnings persistence implicit in the market prices, and it is found that the differences in earnings persistence are not rationally reflected by share price differences
    Keywords: Discretionary accruals; Earnings management; Earnings Persistence; Accrual anomaly;
    Date: 2006–06–26
  8. By: Edmark, Karin (Department of Economics); Ågren, Hanna (Department of Economics)
    Abstract: This paper uses data on Swedish local governments to test for strategic interaction in tax setting. We make no a priori assumptions regarding the underlying behaviour of individuals, but instead attempt to test for the presence and type of underlying spatial process. First, we employ the estimation methods used in most earlier studies, however, we stress that these methods are limited in identifying the source of interaction. Hence, we make use of a number of additional, indirect predictions from the theories of tax competition and yardstick competition, in order to test for the presence of strategic interaction. Using such additional predictions of the theories serves a twofold purpose - first it helps us establish if the spatial coefficient is due to strategic interactions or merelyre?ecting spatial error correlation, and second, it helps identify the source of interaction. The analysis provides strong evidence for spatial dependence in tax rates among Swedish local governments. Moreover, we find weak evidence of tax competition or yardstick competition e¤ects in the setting of tax rates.
    Keywords: Local income tax; Spatial auto-correlation; Tax competition; Yardstick competition
    JEL: C52 D72 H73 H77
    Date: 2006–10–05
  9. By: Peresetsky, Anatoly A. (New Economic School); Karminsky , Alexandr A. (Gazprombank, Moscow, Russia); Golovan , Sergei V. (New Economic School)
    Abstract: This paper presents results from an econometric analysis of Russian bank defaults during the period 1997–2003, focusing on the extent to which publicly available information from quarterly bank balance sheets is useful in predicting future defaults. Binary choice models are estimated to construct the probability of default model. We find that preliminary expert clustering or automatic clustering improves the predictive power of the models and incor-poration of macrovariables into the models is useful. Heuristic criteria are suggested to help compare model performance from the perspectives of investors or banks supervision authorities. Russian banking system trends after the crisis 1998 are analyzed with rolling regressions.
    Keywords: banks; Russia; probability of default model; early warning systems
    Date: 2004–12–30
  10. By: Mario Quagliariello (Banca d'Italia)
    Abstract: Supervisors and policy makers pay increasing attention to the possible procyclical nature of banks’ behaviour. Indeed, to guarantee macro and financial stability, it is important to understand whether, and to what extent, banks are affected by the macroeconomy and second round effects occur. This paper provides a comprehensive investigation of these issues using a large dataset of Italian intermediaries over the period 1985-2002. In particular, estimating both static and dynamic models, it investigates whether loan loss provisions and non-performing loans show a cyclical pattern. The estimated relations may be employed to carry out stress tests to assess the effects of macroeconomic shocks on banks’ balance sheets.
    Keywords: procyclicality, banks, loan loss provisions, non-performing loans, business cycle
    JEL: E30 E32 E44 G28
    Date: 2006–09

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