nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2008‒02‒23
six papers chosen by
Alexander Harin
Modern University for the Humanities

  1. On the Effects of the Degree of Discretion in Reporting Managerial performance By De Waegenaere, A.M.B.; Wielhouwer, J.L.
  2. Potential dividends and actual cash flows. Theoretical and empirical reasons for using ‘actual’ and dismissing ‘potential’, Or: How not to pull potential rabbits out of actual hats By Vélez-Pareja, Ignacio; Magni, Carlo Alberto
  3. Die kurzfristigen Steuereffekte der "Thesaurierungsbegünstigung" für Personenunternehmen : eine mikrofundierte Analyse By Michael Broer; Nadja Dwenger
  4. Gestaltungsmöglichkeiten der Stadtstaaten bei gegebener Steuersatzautonomie für die Körperschaftsteuer : eine empirische Analyse By Michael Broer
  5. On the optimality of the full cost pricing By Jacques Thépot; Jean-Luc Netzer
  6. La performativité des sciences économiques By Fabian Muniesa; Michel Callon

  1. By: De Waegenaere, A.M.B.; Wielhouwer, J.L. (Tilburg University, Center for Economic Research)
    Abstract: We consider a principal-agent setting in which a manager?s compensation de- pends on a noisy performance signal, and the manager is granted the right to choose an (accounting) method to determine the value of the performance signal. We study the effect of the degree of such reporting discretion, measured by the number of acceptable methods, on the optimal contract, the expected cost of com- pensation and the manager?s expected utility. We find that while an increase in reporting discretion never harms the manager, the effect on the expected cost of compensation is more subtle. We identify three main effects of increased report- ing discretion and characterize the conditions under which the aggregate of these three effects will lead to a higher or lower cost of compensation.
    Keywords: managerial compensation;reporting flexibility.
    JEL: D82 D86 M41
    Date: 2008
  2. By: Vélez-Pareja, Ignacio; Magni, Carlo Alberto
    Abstract: Practitioners and academics in valuation include changes in liquid assets (potential dividends) in the cash flows. This widespread and wrong practice is inconsistent with basic finance theory. We present economic, theoretical, and empirical arguments to support the thesis. Economic arguments underline that only flows of cash should be considered for valuation; theoretical arguments show how potential dividends lead to contradiction and to arbitrage losses. Empirical arguments, from recent studies, suggest that investors discount potential dividends with high discount rates, which means that changes in liquid assets are not value drivers. Hence, when valuing cash flows, we should consider only actual payments.
    Keywords: Cash flows; cash flow to equity; free cash flow; liquid assets; potential dividends; firm value; equity value; Modigliani and Miller; levered value; error in valuation
    JEL: M41 G12 G31 G30 M40 M21
    Date: 2008–02–19
  3. By: Michael Broer; Nadja Dwenger
    Abstract: With the 2008 reform of business taxation (Unternehmensteuerreform 2008) a preferential treatment of retained earnings for non-incorporated companies was introduced: Earnings may be retained at a preferential tax rate (29.8%) and will be subjected to supplementary tax (26.4%) when they will be withdrawn in the future. By now, studies on this topic have been based on case studies. Our article is based on microdata of the German Income Tax Statistics 2002 and provides a general empirical analysis of the new regulation's fiscal effects. Unlike studies before, we do not only consider marginal tax rates but also take into account that retained earnings may reduce progressive income tax for other earnings. Moreover we consider that taxpayers may retain earnings without having to pay supplementary taxes on these earnings if they are withdrawn within two years. On the individual level, beneficiaries of the preferential treatment are mainly taxpayers with high income. For instance, those with an annual income of at least 750,000 € reduce their tax burden by approximately 10% (unmarried, withdrawal before retention of 100,000 €). By contrast, taxpayers with an annual income of less than 22,087 € do not benefit from the reform at all. On the macroeconomic level, the fiscal effects of the reform are considerable: Depending on the scenario, we estimate a shortfall in receipts of 3.4 bn, 5.0 bn € and 7.5 bn € (theoretical upper limit).
    Keywords: Business taxes, German income taxation, unincorporated companies, tax revenue, micro simulation
    JEL: H25 H32 H60 C15
    Date: 2008
  4. By: Michael Broer
    Abstract: German corporated companies are taxed with a federal corporation tax and with a local busi-ness tax. The latter has a similar, but broader tax base (including e.g. 25% of interest pay-ments) and its tax rate is set independently by every municipality including the so called city-states (Stadtstaaten). The federal corporation tax revenue is equally split between the federal government and the federal states (Länder). Till now the federal tax rate has been fixed by the German government. Federal states have not had the right to rule the tax rate of their share of corporation tax. At present a federal commission is discussing whether this should be possible in the future. Once granted this privilege, the city-states will be able to substitute their part of corporation tax by a higher local business tax. Furthermore, because of its broader tax base, there will be a reduction of the statutory tax rate for corporations without a decrease in tax revenue. This paper analyses the revenue effects of this substitution for the city-states taking into account the German fiscal equalization system and the incentive of profit shifting to the city-states. The analysis shows some positive revenue effects to the city-states, if they will substitute their part of corporation tax by a higher local business tax. The revenue effects are subject to different scenarios and add up to 17.5 million for Hamburg, 10.4 million for Berlin and 3.6 million for Bremen.
    JEL: H25 H71 H73
    Date: 2008
  5. By: Jacques Thépot (Laboratoire de Recherche en Gestion et Economie, Université Louis Pasteur); Jean-Luc Netzer
    Abstract: Most companies prefer to use absorption costing rule rather than marginal cost pricing. This article is aimed at defining the absorption costing rule as deriving from a principal-agent formulation of two tier organizations : (i) the upstream unit fixes the production capacity and uses it as a cost driver to compute the average cost (ii) the downstream unit operates on the market and chooses the output level on the basis of the average cost. Absorption costing results in two policies to be used according to the magnitude of the fixed cost. When the fixed cost is low, the capacity is fully used and a full cost pricing policy holds; when the fixed cost is high, a partial cost pricing policy holds since only a part of the fixed cost is passed on. The absorption costing rule competes with three pricing rules related to this two-tier structure and various payoffs functions associated to the decision levels: the separation, the tranfer pricing and the integration These rules are analyzed in the Cournot oligopoly case and comparisons in terms of profits are made. Except in the monopoly case, there exists a wide range of values of the fixed cost, for which the full cost pricing dominates all the other rules. In addition, there exists a specific value of the fixed cost for which the full cost pricing duplicates the monopoly and then leads to the first best solution of the Cournot oligopoly.
    Keywords: Full cost pricing, imperfect competition.
    JEL: D4 L22 M41
    Date: 2007
  6. By: Fabian Muniesa (Centre de Sociologie de l'Innovation, Ecole des Mines de Paris); Michel Callon (Centre de Sociologie de l'Innovation, Ecole des Mines de Paris)
    Abstract: Provides some theoretical developments on the topic of the performativity of economics.
    Keywords: Performativity, economics, economic sociology, anthropology, science and technology studies, actor-network theory
    JEL: A11 A12 A13 A14 B20 C93 D01 D02 D40 D44 E26 E27 L10 L33 M30 M40 N00 O10 O30 O31 O33 Z13
    Date: 2008–02

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