nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2007‒01‒13
fourteen papers chosen by
Alexander Harin
Modern University for the Humanities

  1. "Value Relevance of Consolidated Earnings \\ Evaluation of Japanese Revolution and a New Proposal by FASB \\ "(in Japanese) By Takashi Obinata
  2. In praise of tax havens: International tax planning and foreign direct investment By Qing Hong; Michael Smart
  3. Optimal Pre-Announced Tax Reforms Under Valuable And Productive Government Spending By Mathias Trabandt
  4. "The beginning and modification of bonus payments to directors in Japan"(in Japanese) By Makoto Kasuya
  5. Liquidity and Capital Structure By Andrew Carverhill; Ron Anderson
  6. Neutral Property Taxation By Richard Arnott
  7. Management accounting and power: A contested relationship By João A. Ribeiro; Robert W. Scapens
  8. "Bankruptcy Analysis and Going-concern Opinion Is Cox Proportional Hazard Model applicable to the auditing practice?"(in Japanese) By Takashi Obinata
  9. Dynamic Scoring: Alternative Financing Schemes By Eric M. Leeper; Shu-Chun Susan Yang
  10. "Value Relevance of Legally Mandated Provisions"(in Japanese) By Takashi Obinata
  11. Coordinating Federal and Provincial Sales Taxes: Lessons from the Canadian Experience By Richard M. Bird; Jack M. Mintz; Thomas A. Wilson
  12. The Dividend Pricing Model: New Evidence from the Korean Housing Market. By Min Hwang; John Quigley; Jae Son
  13. Testing for Balance Sheet Effects in Emerging Market Countries By Uluc Aysun
  14. Pojištení vkladu: soucasný stav, srovnání a perspektiva v kontextu EU / Credit Insurance: EU context [available in Czech only] By Jiří Hlavácek

  1. By: Takashi Obinata (Faculty of Economics, University of Tokyo)
    Abstract: In 2000, the reform of consolidated financial statements changed the income statement section where amortization of goodwill and gains and losses from interest method should be disclosed. The results in this paper show that the reform may improve the value relevance of operating profits and ordinary income. We cannot find the evidence that the reform decreases the relevance of the multi-step earnings. Though we cannot definitively conclude that the reform was the best way for improving the value relevance of earnings, the reform can be positively evaluated. While FASB makes a new proposal that income of economic unit (consolidated group) should be disclosed on the bottom line in the income statement in the U.S, minority interest is disclosed in the section of net wealth on the balance sheet now in Japan. This paper investigates the value relevance of minority interest in the income statement and on the balance sheet on the grounds that both should be treated consistently. Minority interest in the income statement is not necessarily irrelevant. The sum of net income and minority interest is not less relevant than net income alone in current form. We also find the evidence that minority interest on the balance sheet has different information contents from liabilities and owners' equity. However it is not clear how the minority interest is related to the fundamental value of the firm. This paper provides new evidence to the research on the relationship.
    Date: 2006–07
  2. By: Qing Hong; Michael Smart
    Abstract: The multinationalization of corporate investment in recent years has given rise to a number of international tax avoidance schemes that may be eroding tax revenues in industrialized countries, but which may also reduce tax burdens on mobile capital and so facilitate investment. Both the welfare effects of and the optimal response to international tax planning are therefore ambiguous. Evaluating these factors in a simple general equilibrium model, we find that citizens of high-tax countries benefit from (some) tax planning. Paradoxically, if tax rates are not too high, an increase in tax planning activity causes a rise in optimal corporate tax rates, and a decline in multinational investment. Thus fears of a ``race to the bottom\\\'\\\' in corporate tax rates may be misplaced.
    Keywords: income shifting, tax planning, foreign direct investment, tax competition, thin capitalization
    JEL: H2 H7
    Date: 2006–12–06
  3. By: Mathias Trabandt (School of Business and Economics Humboldt University Berlin)
    Abstract: This paper analyzes optimal pre-announced capital and labor income tax reforms under valuable and productive government spending. Our baseline optimal reform reveals that these model ingredients result in a reduction of welfare losses that occur when the reform is announced before its implementation. Further, the mere existence of welfare losses from pre-announcement is due to the ability of the government to initially choose very high capital taxes and negative labor taxes. A government that instead chooses optimal long run taxes from the implementation date onwards generates sizable increases of welfare gains from pre-announcing the reform. We show that 4 years pre-announcement of this reform and the baseline optimal reform deliver similar levels of welfare gains. The underlying tax structure of both reforms, however, appears to be very different
    Keywords: Optimal taxation, pre-announcement, valuable and productive government spending, welfare
    JEL: E0 E6 H0
    Date: 2006–12–03
  4. By: Makoto Kasuya (Faculty of Economics, University of Tokyo)
    Abstract: This paper analyzes the formation and modification of yakuin-shoyo in Japan. Yakuin signifies directors and auditors in these days. Soon after the Meiji Restoration, however, yakuin signified directors and white-collar workers, because National Bank Act of 1872 used this term in this way and many companies were established in accordance with the act. White-collar workers were stipulated in company's articles. Moreover, bonuses were paid not only to directors but also to white-collar workers, of which amounts were determined as a certain percentage of profits in some companies. White-collar workers were under the scheme of profit-sharing. After the commercial code, which was enforced in 1893, however, the influence of National Bank Act became weak and today's usage of yakuin prevailed very fast. Stipulations of articles on white-collar workers disappeared and bonuses to them were paid as costs after the reform of the commercial code of 1899.
    Date: 2006–03
  5. By: Andrew Carverhill; Ron Anderson
    Abstract: This paper solves for a firm's optimal cash holding policy within a continuous time, contingent claims framework that has been extended to incorporate most of the significant contracting frictions that have been identified in the corporate finance literature. Under the optimal policy the firm targets a level of cash holding that is a non-monotonic function of business conditions and an increasing function of the amount of long-term debt outstanding. By allowing firms to either issue equity or to borrow short-term, we show how share issue and dividends on the one hand and cash accumulation and bank borrowing on the other are all mutually interlinked. We calibrate the model and show that it matches closely a wide range of empirical benchmarks including cash holdings, leverage, equity volatility, yield spreads, default probabilities and recovery rates. Furthermore, we show the predicted dynamics of cash and leverage are in line with the empirical literature. Despite the presence of significant contracting frictions we show that the model exhibits a near irrelevance of long-term capital structure property. Furthermore, the optimal policy exhibits a state-dependent hierarchy among financing alternatives that is consistent with recent explorations of pecking order theory. We calculate the agency costs generated by the confliict of interest between shareholders and creditors regarding the firm's liquidity policy and show that bond covenants that establish an earnings restriction on dividend payments may be value increasing.
    Date: 2006–12
  6. By: Richard Arnott (Boston College)
    Abstract: A major difficulty in implementing land/site value taxation is imputing the land value of builton sites. The literature has focussed on two alternatives. The first, residual site value, measures postdevelopment site value as property value less structure value, measured as depreciated construction costs. Residual site value would be relatively easy to estimate, but residual site value taxation is distortionary, discouraging density. The second, raw site value, measures post-development site value as "what the land would be worth were there no building on the site (though in fact there is)". Raw site value taxation is neutral (does not distort the timing and density of development), but the estimation of raw site value would be complex so that assessment would likely be less fair and more arbitrary, contentious, and prone to abuse. This paper asks the question: Is it not possible to design a property tax system (taxation of predevelopment land value, post-development structure value, and post-development site value at possibly different rates) that employs the administratively simpler residual definition of post-development site value and achieves neutrality? The paper provides an affirmative answer, characterizes the tax rates that achieve neutrality, and briefly discusses issues of practical implementation.
    Date: 2006–06–27
  7. By: João A. Ribeiro (CETE, Faculdade de Economia, Universidade do Porto); Robert W. Scapens (Manchester Business School)
    Abstract: This paper is structured in two parts. In the first part we undertake a brief discussion on the concept of power and we explore the way this concept has been regarded in several strands of literature on management accounting – the conventional, the contingency, the pluralist, the interpretive, the critical and the post-structuralist. Some of these strands – for instance, the pluralist, the critical and the post-structuralist – explicitly recognise the importance of (some conception of) power in their approach to management accounting in society and organisations. Other approaches are less explicit in that recognition or simply overlook/reject it. The second part of the paper takes sides, departing from the idea that there is a relationship between management accounting and power and proposes a framework for conceptualising that relationship. This framework attempts to bring together different dimensions/conceptions of power, and is proposed as a way to study management accounting and its change within organisations.
    Keywords: power, management accounting, change, circuits of power
    JEL: M41
    Date: 2006–11
  8. By: Takashi Obinata (Faculty of Economics, University of Tokyo)
    Abstract: This paper reviews the literature on bankruptcy analysis, focusing on the association (the logical linkage) between hazard model and going-concern opinion. Hazard model is a technique that can test the relative impact on the bankruptcy risk of a particular factor, but not a technique that estimates the probabilities of the bankruptcy. Therefore, it is doubtful whether the estimation results by the hazard model can be directly applicable to the going-concern audit. Prior studies repeated the data mining in the absence of theoretical background and rational hypotheses, so the important issues are open to further research, i.e. selection of independent and dependent variables, model selection. Before we apply hazard model to the auditing practice, some hard problems should be resolved. For example, the evaluation method of estimated results and the effects on the firm's behavior by modified opinion are not clarified yet. Though many studies report that the information value of going-concern opinion is suspicious, their research design includes problems in many cases. For the present, no definitive conclusion on the information value exists. From the beginning, it is doubtful whether empirical research using public data can unveil the private decision-making process of auditors, who can know the internal (private) information of the firm.
    Date: 2005–12
  9. By: Eric M. Leeper (Indiana University); Shu-Chun Susan Yang (Joint Committee on Taxation)
    Abstract: Neoclassical growth models predict that reductions in capital or labor tax rates are expansionary when lump-sum transfers are used to balance the government budget. This paper explores the consequences of bond-financed tax reductions that bring forth a range of possible offsetting policies, including future government consumption, capital tax rates, or labor tax rates. Through the resulting intertemporal distortions, current tax cuts can be contractionary. The paper also finds that more aggressive responses of offsetting policies to debt engender less debt accumulation and less costly tax cuts.
    Keywords: Revenue feedback, capital tax, labor tax, debt management
    JEL: H2 H3 H6
    Date: 2006–12
  10. By: Takashi Obinata (Faculty of Economics, University of Tokyo)
    Abstract: The purpose of this paper is to investigate the value relevance of the legally mandated provisions. This paper examines the effects of changes in provisions on the value relevance of earnings. The results show that the calculation of provisions will deteriorate the relevance of earnings when the changes in provisions may artificially and mechanically smooth earnings. However, the provision for railroad maintenance functions as a allocation method of operating revenues and the provision for insurance payment functions as a allocation method of operating expenses. These provisions seem to improve the value relevance of earnings. Therefore, we cannot discriminate against the legally mandated provisions for the very reason that their calculation is formally restricted. Whether provision is legally mandated or not, we still have many unresolved problems about provisions on the disclosure in the balance sheet and on the calculation in the income statement.
    Date: 2005–09
  11. By: Richard M. Bird; Jack M. Mintz; Thomas A. Wilson (International Tax Program, Rotman School of Management, University of Toronto)
    Abstract: Canada has operated both a federal value-added tax (the GST) and two variants of provincial VATs for the last 15 years. In addition, several provinces have continued to operate retail sales taxes similar to those in most US states. A brief review of experience around the world with 'two-level' sales tax indicates that Canadian experience is the most relevant international experience for the US to consider. We conclude that the Canadian case suggests that the introduction of a federal VAT in the US would not create any great technical problems for eithere the states or business.
    Keywords: sales tax, value-added tax, intergovernmental coordination
    JEL: H77 H71 H25
    Date: 2006–11
  12. By: Min Hwang (National University of Singapore); John Quigley (University of California, Berkeley); Jae Son (Kok-Kuk University)
    Abstract: It is generally conceded that dividend pricing models are poor predictors of asset prices. This finding is sometimes attributed to excess volatility or to a dividend process manipulated by firm managers. In this paper, we present rather powerful panel tests of the dividend pricing relation using a unique data set in which dividends are set by market forces independent of managers' preferences. We rely on observations on the market for condominium dwellings in Korea - perhaps the only market in which information on dividends and prices is publicly and continuously available to consumers and investors. We extend the "dividend-price ratio model" to panels of housing returns and rents differentiated by type and location. We find broad support for the dividend pricing model during periods both before and after the Asian Financial Crisis of 1997-1998, suggesting that the market for housing assets in Korea has been remarkably efficient.
    Keywords: Housing prices,
    Date: 2006–07–13
  13. By: Uluc Aysun (University of Connecticut)
    Abstract: This paper tests the presence of balance sheets effects and analyzes the implications for exchange rate policies in emerging markets. The results reveal that the emerging market bond index (EMBI) is negatively related to the banks. foreign currency leverage, and that these banks. foreign currency exposures are relatively unhedged. Panel SVAR methods using EMBI instead of advanced country lending rates find, contrary to the literature, that the amplitude of output responses to foreign interest rate shocks are smaller under relatively fixed regimes. The findings are robust to the local projections method of obtaining impulse responses, using country specific and GARCH-SVAR models.
    Keywords: EMBI, bank balance sheets, leverage, country risk premium, exchange rates.
    JEL: E44 F31 F41
    Date: 2006–08
  14. By: Jiří Hlavácek (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Prague, Czech Republic)
    Abstract: Czech laws on Deposit Guarantee-Schemes are characterized. It is described history of rise of the Czech Deposit Insurance Fund and dynamics of its basic characteristics. Czech deposit guarantee system is compared with the European system and with the European Directive on Deposit Guarantee-Schemes. It is calculated the effective rate of “taxation” by the compulsory payment to Czech Deposit Insurance Fund, which is (because of the very low interest rates in the Czech Republic) extremely high (about 30 – 40 %). Recommendations: 1) legislatively prevent politics from controlling the (private) financial funds in the system, 2) discard the audited firms from the Deposit Guarantee-Scheme and 3) decrease the amounts compulsorily paid by banks for deposits of small clients (deposits of households).
    Keywords: Deposit Insurance; the Czech Deposit Insurance Fund; the European Directive on Deposit Guarantee-Schemes
    JEL: E53 C10
    Date: 2006–09

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