nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2006‒12‒01
ten papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The Impact of Client Gender, Perceived Client Expertise & Auditor Gender on Auditors' Judgments By N?teberg, A.H.; Hunton, J.E.; Gomaa, M.
  2. Vintage Capital and Expectations Driven Business Cycles By Floden, Martin
  3. The impact of financial constraints on innovation : evidence from French manufacturing firms By Frédérique Savignac
  4. Forensic Accounting: Hidden balance of payments of the Philippines By Beja Jr., Edsel
  5. Reforming the taxation of Multijurisdictional Enterprises in Europe, "Coopetition" in a Bottom-up Federation By Marcel Gerard
  6. Investment-Cash Flow Sensitivities, credit rationing and financing constraints By BECCHETTI LEONARDO; CASTELLI ANNALISA; HASAN IFTEKHAR
  7. The determinants of corporate debt maturity structure: evidence from Czech firms By Pavel Körner
  8. Who writes the rules for hostile takeovers, and why? - The peculiar divergence of US and UK takeover regulations By John Armour; David A. Skeel, Jr.
  9. Fair Disclosure and Investor Asymmetric Awareness in Stock Markets By Liu, Zhen
  10. Will Italy’ s Tax Reform Reduce The Corporate Tax Burden?A Microsimulation Analysis By OROPALLO FILIPPO; PARISI VALENTINO

  1. By: N?teberg, A.H.; 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 gender, perceived client expertise and auditor gender. While we predict an overall male client favorability bias, we expect that such bias will be mitigated when the client possesses a high, relative to low, level of perceived expertise. Further, we predict differential responses of male and female auditors toward client gender and perceived expertise based on dissimilar risk propensity traits between genders. A total of 157 experienced auditors participated in a between-participants experiment with two manipulated variables [client gender (male or female) and perceived client expertise (high or low)] and one measured variable [auditor gender (male or female)]. In a client-inquiry scenario, auditors exhibit greater belief revision when the client is male as compared to female. We observe a mitigating effect of perceived client expertise for male auditors, but not female auditors. Female auditors react more strongly than male auditors to client gender, such that they refrain from strongly revising their beliefs when the client is female, even when perceived client expertise is high. 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 gender stereotypes toward female managers.
    Keywords: Gender Stereotypes;Client Expertise;Client Gender;Auditor Gender;Risk Taking;
    Date: 2006–11–15
  2. By: Floden, Martin (Dept. of Economics, Stockholm School of Economics)
    Abstract: This paper demonstrates that increased optimism about future productivity can generate an immediate economic expansion in a neoclassical model with vintage capital and variable capacity utilization. Previous research has documented that standard neoclassical models cannot generate a simultaneous increase in consumption, investment, and hours in response to news shocks, and that optimism in these models tends to reduce investment and hours. When technology is vintage specific, however, expectations of higher future productivity raise the demand for new vintages of capital relative to old capital. Capital depreciates faster when utilization is high, but this depreciation only affects installed capital. The cost of high depreciation therefore falls when the value of installed capital falls. It is demonstrated here that with standard parameter values, more optimism raises utilization, consumption, investment, hours, and output.
    Keywords: Expectations; News; Business cycles; Vintage capital; Capital-embodied technological change
    JEL: E13 E32
    Date: 2006–11–10
  3. By: Frédérique Savignac (CREST-LMI - [Centre de Recherche en Economie et Statistique - Laboratoire de Microéconométrie])
    Abstract: This paper examines the impact of financial constraints on innovation for established firms. We make use of a qualitative indicator of the existence of financial constraints based on firms' own assessment obtained thanks to a French specific survey. Thus, the existence of financial constraints for innovation is measured by a direct indicator whereas previous studies rely on proxies (like the cash-flow sensitivity) subject to interpretation problems. The descriptive analysis of balance sheet structures reveals that innovative firms without financial constraints have the best profile in terms of economic performances, financing structure and risk whereas non innovative firms facing financial constraints have the poorest profile. From the econometric point of view, the probabilities of implementing innovative projects and of facing financial constraints are simultaneously estimated by a recursive bivariate probit model to account for the endogeneity of the financial constraint variable. We then find that firms having innovative projects face financial constraints that significantly reduce the likelihood that they implement their innovative investment. The probability of facing financing constraints is explained by firms' ex ante financing structure and economic performances, by industry sector and it decreases with firms' size.
    Keywords: Innovation, financing constraints, recursive bivariate probit.
    Date: 2006–11–22
  4. By: Beja Jr., Edsel
    Abstract: An examination of the available data between 1990 and 2005 reveals that the balance of payments of the Philippines does not record large amounts of international transactions. Total unrecorded international transactions reached US$ 192 billion (in 1995 prices) during this period. Results imply a problem in macro economic management: there is weak or weakening capacity in the governance of resource flows.
    Keywords: Balance of Payments; Philippines
    JEL: C82 F40 O53 B50 B40
    Date: 2006–11–25
  5. By: Marcel Gerard (FUCaM, Catholic University of Mons, ARPEGE, Dept Economics and Sociology, chaussee de Binche 151, B-7000 Mons, Belgium)
    Abstract: This paper investigates replacing separate taxation by consolidation and formulary apportionment in a Bottom-up Federation, when a multijurisdictional firm is mobile in various respects. The reform is decided cooperatively by all the jurisdictions or by some of them, while tax rates remain within the competence of each jurisdiction. The paper sets forth the conditions for the reform to be social welfare enhancing, while not increasing tax competition. Among them, the formula should emphasize criteria that the Multijurisdictional Enterprise cannot easily manipulate and the consolidating area should protect its capacity to levy taxes by adopting a crediting system, possibly extended to accrued capital gains, vis-à-vis the rest of the world. Policy conclusions are suggested accordingly.
    Keywords: taxation of multinational enterprises, consolidation and formulary apportionment, fiscal federalism
    JEL: H32 H73 H87
    Date: 2006–11
    Abstract: The controversy on whether the investment-cash flow sensitivity is a good indicator of financing constraints is still unsolved. We tackle it from many different angles cross-validating our analysis with both balance sheet and qualitative data on self declared credit rationing and financing constraints. Our qualitative information shows that (self declared) credit rationing is (weakly) related to both traditional a priori factors - such as firm size, age and location - and lenders’ rational decisions taken on the basis of their credit risk models. We use our qualitative information on firms which were denied (additional) credit to provide evidence relevant to the investment-cash flow sensitivity debate. Our results show that self declared credit rationing significantly discriminates between firms which possess or not such sensitivity, while a priori criteria do not. The same result does not apply when we consider the wider group of financially constrained firms (which do not seem to have a higher investment-cash flow sensitivity) supporting the more recent empirical evidence in this direction.
    Keywords: financing constraints, credit rationing, investment/cash flow sensitivity JEL classification: D92, G21
    Date: 2005–11
  7. By: Pavel Körner (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper investigates the determinants of the corporate debt maturity structure of Czech firms. The theoretical section provides an overview of contemporary theories on corporate debt maturity structure. The regression section describes an econometric model showing that the long-term debt increases with Firm size, Leverage and Asset maturity. The impact of Growth options, Collateralizable assets, Firm tax rate, and Firm level volatility has been found out as statistically insignificant. The portfolio analyses section of this paper shows the bank-based system pattern of financing of Czech firms, increasing importance of intra-group financing and increasing presence of Maturity matching principle. Finally, the paper discusses the limitations of the results in the field of data, variables, and determinants.
    Keywords: corporate debt maturity structure; bank debt; bond debt; short-term debt; long-term debt; transition economy
    JEL: G31 G32
    Date: 2006–10
  8. By: John Armour; David A. Skeel, Jr.
    Abstract: Hostile takeovers are commonly thought to play a key role in rendering managers accountable to dispersed shareholders in the "Anglo-American" system of corporate governance. Yet surprisingly little attention has been paid to the very significant differences in takeover regulation between the two most prominent jurisdictions. In the UK, defensive tactics by target managers are prohibited, whereas Delaware law gives US managers a good deal of room to maneuver. Existing accounts of this difference focus on alleged pathologies in competitive federalism in the US. In contrast, we focus on the "supply-side" of rule production, by examining the evolution of the two regimes from a public choice perspective. We suggest that the content of the rules has been crucially influenced by differences in the mode of regulation. In the UK, self-regulation of takeovers has led to a regime largely driven by the interests of institutional investors, whereas the dynamics of judicial law-making in the US have benefited managers by making it relatively difficult for shareholders to influence the rules. Moreover, it was never possible for Wall Street to "privatize" takeovers in the same way as the City of London, because US federal regulation in the 1930s both pre-empted self-regulation and restricted the ability of institutional investors to coordinate.
    Keywords: Hostile takeovers; History of corporate law; Comparative corporate law; Self-regulation; Institutional investors; Evolution of law; Anglo-American corporate governance
    JEL: G23 G34 G38 K22 N20 N40
    Date: 2006–09
  9. By: Liu, Zhen
    Abstract: The US Security and Exchange Commission implemented Regulation Fair Disclosure in 2000, requiring that an issuer must make relevant information disclosed to any investor available to the general public in a fair manner. Focusing on firms that are affected by the regulation, we propose a model that characterizes the behavior of two types of investors\----one professional investor and many small investors\----in the regimes before and after the regulation, i.e., under selective disclosure and fair disclosure. In particular, we introduce the concept of awareness and allow investors to be aware of relevant information symmetrically or asymmetrically. We show that with symmetric awareness, fair disclosure induces both a low cost of capital and a low cost of information, therefore making the market efficient. Also, the professional investor collects an equal level of information under fair disclosure than under selective disclosure. However when small investors are not fully aware, fair disclosure still induces a low cost of capital but may induce a high cost of information. The professional investor may deliberately collect less information under fair disclosure than under selective disclosure. With asymmetric awareness, our theory produces predictions that match the empirical findings by Ahmed and Schneible Jr. (2004) and Gomes, Gorton, and Madureira (2006). They find that small and complex firms are negatively affected by the regulation. We also show that fair disclosure improves the welfare of small investors when they are extremely unaware. Such results are not compatible with the standard symmetric awareness assumption.
    Keywords: Reg FD; Regulation Fair Disclosure; Information Disclosure; Fair Disclosure; Selective Disclosure; Unawareness; Asymmetric Awareness
    JEL: G38 D82
    Date: 2006–11
    Abstract: This paper analyses the impact of the corporate tax reform introduced in Italy at the beginning of 2004 on firms’ tax burden. For this purpose we develop a microsimulation model reproducing the Italian corporate tax system. The model is based on an integrated dataset combining ISTAT (Italian Institute of Statistics) survey data on enterprises and company accounts, for the year 2000. The empirical analysis considers two policy scenarios. The base-line is represented by the corporate tax legislation of 2001, before the practical abolition of the Dual Income Tax system, while the reformed scenario examines the corporate tax reform passed in 2004. Simulation results show that the mean ex-post implicit tax rate increases by 0.26 percentage points. However, in spite of this, we find that for firms belonging to groups and opting for tax consolidation the mean ex-post implicit tax rate falls by 1.18 percentage points, showing in this way that groups are favoured by the new regime.
    Date: 2005–05

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