nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2006‒11‒18
seven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. IFRS Adoption in Europe: the Case of Germany By Soledad Moya; Jordi Perramon; Anselm Constans
  2. ACE vs. CBIT: Which is Better for Investment and Welfare? By Doina Maria Radulescu; Michael Stimmelmayr
  3. The Impact of Thin-Capitalization Rules on Multinationals’ Financing and Investment Decisions By Thiess Buettner; Michael Overesch; Ulrich Schreiber; Georg Wamser
  4. Why do firms hold so much cash? A tax-based explanation By C. Fritz Foley; Jay C. Hartzell; Sheridan Titman; Garry Twite
  5. Taxation and Capital Structure Choice – Evidence from a Panel of German Multinationals By Thiess Buettner; Michael Overesch; Ulrich Schreiber; Georg Wamser
  6. Nieuwe Ronde, Nieuwe Kansen: Ontwikkeling in Management Accounting & Control By Boons, A.N.A.M.
  7. Agency theory of overvalued equity as an explanation for the accrual anomaly By Kothari,S.P.; Loutskina,Elena; Nikolaev,Valeri

  1. By: Soledad Moya (Department of Business Economics, Universitat Autonoma de Barcelona); Jordi Perramon (Departament d'Economia i Empresa, Universitat Pompeu Fabra); Anselm Constans (Departament d'Economia i Empresa, Universitat Pompeu Fabra)
    Abstract: From 2005 onwards, consolidated financial statements of listed European companies will have to comply with IFRS (IAS). Many German companies began adopting those standards in the 1990s, on a voluntary basis, because of their need to access international capital funding. Spanish companies, by contrast, are not permitted to adopt IFRS before 2005. This paper has two purposes: first, it analyses the financial impact of initial IFRS adoption on the statement of changes in equity and the income statement of individual German companies. Second, and taking into account the German experience, it focuses on the expected impacts on a sample of listed Spanish companies in two industrial sectors: chemical-pharmaceutical and fashion. Our analysis of German companies comprised all non-financial DAX groups applying IFRS plus additional listed companies in the two selected industrial sectors identified above. The impact of initial adoption of IFRS on German companies was, both individually and overall, very significant. The analysis suggests that the expected impact on Spanish companies is likely to be significant but to a lesser degree than in respect of the German companies in the study.
    Keywords: IFRS adoption, Germany, Spain, IFRS adjustments, chemical-pharmaceutical sector, fashion sector
    Date: 2005–02
  2. By: Doina Maria Radulescu; Michael Stimmelmayr
    Abstract: This paper analyses the switch to an ACE or to a CBIT type of tax system starting from the present German tax system. We show that in case an ACE type of reform is financed by an increase in the VAT and not in the profit tax, it might be preferred to a CBIT even in the context of an open economy. Moreover, the required exogenous increase in the profit tax rate cannot ensure revenue neutrality on its own due to the negative general equilibrium effects it triggers on the whole economy. For a CBIT, the exogenous reduction in the tax rates on corporate and non-corporate profits leads to better results than when we allow for an endogenous change in the VAT. The best results arise when the CBIT is accompanied by a provision for immediate write-off and a lower profit tax or when the ACE with no additional capital gains taxation on the household side is financed by an increase in the VAT.
    Keywords: income taxation, computable general equilibrium modeling, welfare analysis
    JEL: C68 D58 D92 E62 H25
    Date: 2006
  3. By: Thiess Buettner; Michael Overesch; Ulrich Schreiber; Georg Wamser
    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: G32 H25 H26
    Date: 2006
  4. By: C. Fritz Foley; Jay C. Hartzell; Sheridan Titman; Garry Twite
    Abstract: U.S. corporations hold significant amounts of cash on their balance sheets, and these cash holdings have been justified in the existing empirical literature by transaction costs and precautionary motives. An additional explanation, considered in this study, is that U.S. multinational firms hold cash in their foreign subsidiaries because of the tax costs associated with repatriating foreign income. Consistent with this hypothesis, firms that face higher repatriation tax burdens hold higher levels of cash, hold this cash abroad, and hold this cash in affiliates that trigger high tax costs when repatriating earnings. Estimates indicate that a one standard deviation increase in the tax burden from repatriating foreign income is associated with a 7.9% increase in the ratio of cash to net assets. In addition, certain firms, specifically those that are less financially constrained domestically and those that are more technology intensive, exhibit a higher sensitivity of affiliate cash holdings to repatriation tax burdens.
    JEL: F23 F3 G32 G35 H25
    Date: 2006–10
  5. By: Thiess Buettner; Michael Overesch; Ulrich Schreiber; Georg Wamser
    Abstract: This paper analyzes the impact of taxes and lending conditions on the financial structure of multinationals' foreign affiliates. The empirical analysis employs a large panel of affiliates of German multinationals in 26 countries in the period from 1996 until 2003. In accordance with the theoretical predictions, the effect of local taxes on leverage is positive for both types of debt. Moreover, while adverse local credit market conditions are found to reduce external borrowing, internal debt is increasing, supporting the view that the two channels of debt finance are substitutes.
    Keywords: corporate income tax, multinationals, capital structure, firm-level data
    JEL: G32 H25 H26
    Date: 2006
  6. By: Boons, A.N.A.M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: In this inaugural address I take a bird?s eye view on the recent developments in the disciplines of management accounting and management control during the past two decades. Three stages are distinguished and clarified: the accounting stage, operational excellence and, finally, the customer intimacy phase. Subsequently I concentrate on the issue of customer value management.The point of departure for this elaboration is the calculation of customer value. Starting from a very simple formula I try to penetrate into the underlying world of antecedent and interrelated variables which have a proven impact on customer value. After a short survey of the empirical knowledge gathered until this moment I wind up with a conceptual framework for future research. Concerning the issue of the impact of customer intimacy on the design of management control systems my conclusion is that the central question to be answered is the question concerning the prevailing image of man. Is it possible to adhere to the traditional image (?all man are equal?) in stimulating organizations towards more innovative behaviour? Which comes down to target setting,defining and measuring performance. Or is it necessary to introduce a different image of man in which diversity and uniqueness is emphasized (?all man are unique?) stressing selfcontrol as a means for achieving congruence. Or is a middle ground called for?
    Keywords: Accounting;Control;Management;Customer Value Management.;Accounting Stage;Operational Excellence;Customer Intimacy Phase;
    Date: 2006–09–29
  7. By: Kothari,S.P.; Loutskina,Elena; Nikolaev,Valeri (Tilburg University, Center for Economic Research)
    Abstract: We show that the agency theory of overvalued equity (see Jensen, 2005) rather than investors' fixation on accruals explains the accrual anomaly, i.e., abnormal returns to an accrual trading strategy (see Sloan, 1996). Under the agency theory of overvalued equity, managers of overvalued firms are likely to manage their firms' accruals upwards to prolong the overvaluation. Thus, high-accrual portfolios are likely to be over-represented with over-valued firms. Overvaluation, however, cannot be sustained indefinitely and we expect price reversals for high accrual firms. In contrast, undervalued firms do not face incentives to report low accruals, so undervalued firms are not concentrated in low accrual decile portfolios. Therefore, across the accrual decile portfolios, we predict and find an asymmetric relation between accruals and both prior and subsequent returns. In addition, consistent with the predictions of the agency theory of overvalued equity, we find high, but not low, accrual firms' investment-financing decisions and insider trading activity are distorted, and analyst forecast optimism is concentrated among the high-accrual decile portfolios. Overall, return behavior, analyst optimism, investment-financing decisions, and insider trading activity are all consistent with the agency theory of overvalued equity, but do not support investor fixation on accruals.
    Keywords: accrual anomaly;earnings management;agency theory of overvalued equity
    JEL: M41 G3
    Date: 2006

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