nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2008‒09‒20
three papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Consequences of Voluntary and Mandatory Fair Value Accounting: Evidence Surrounding IFRS Adoption in the EU Real Estate Industry By Karl A. Muller; Edward J. Riedl; Thorsten Sellhorn
  2. Market Reaction to the Adoption of IFRS in Europe By Christopher S. Armstrong; Mary E. Barth; Alan D. Jagolinzer; Edward J. Riedl
  3. The Social Multiplier of Tax Evasion: Evidence from Italian Audit Data By Roberto Galbiati; Giulio Zanella

  1. By: Karl A. Muller (Pennsylvania State University - Department of Accounting); Edward J. Riedl (Harvard Business School, Accounting and Management Unit); Thorsten Sellhorn (Ruhr-Universität Bochum)
    Abstract: We examine the causes and consequences of European real estate firms' decisions to provide investment property fair values prior to the required disclosure of this information under International Financial Reporting Standards (IFRS). We find evidence that investor demand for fair value information-reflected in more dispersed ownership-and a firm's commitment to transparency increase the likelihood of providing fair values prior to their required provision under International Accounting Standard 40 - Investment Property. We also find that firms not providing these fair values face higher information asymmetry. However, we fail to find that the relatively higher information asymmetry was reduced following mandatory adoption of IFRS. Rather, we find that differences in information asymmetry largely remain. Taken together, this evidence suggests that common adoption of fair value accounting due to the mandatory adoption of IFRS does not necessarily level the informational playing field.
    Keywords: Fair value, disclosure, IFRS, information asymmetry
    Date: 2008–08
  2. By: Christopher S. Armstrong (The Wharton School, University of Pennsylvania); Mary E. Barth (Graduate School of Business, Stanford University); Alan D. Jagolinzer (Graduate School of Business, Stanford University); Edward J. Riedl (Harvard Business School, Accounting and Management Unit)
    Abstract: This study examines the European stock market reaction to sixteen events associated with the adoption of International Financial Reporting Standards (IFRS) in Europe. European IFRS adoption represented a major milestone towards financial reporting convergence yet spurred controversy reaching the highest levels of government. We find a more positive reaction for firms with lower quality pre-adoption information, which is more pronounced in banks, and with higher pre-adoption information asymmetry, consistent with investors expecting net information quality benefits from IFRS adoption. We also find that the reaction is less positive for firms domiciled in code law countries, consistent with investors' concerns over enforcement of IFRS in those countries. Finally, we find a positive reaction to IFRS adoption events for firms with high quality pre-adoption information, consistent with investors expecting net convergence benefits from IFRS adoption. Overall, the findings suggest that investors in European firms perceived net benefits associated with IFRS adoption.
    Keywords: IFRS, IAS 39, Convergence, Europe, Event Study
    JEL: M41 G15 G38
    Date: 2008–09
  3. By: Roberto Galbiati; Giulio Zanella
    Abstract: We investigate the role of individual interdependencies in tax evasion, arising from congestion on the auditing resources available to local tax authorities. Identification exploits a novel method based on comparison of the variance of individual behavior — concealed income in this case — at different levels of aggregation, within different subpopulations (Graham, 2008). This method allows us to mitigate some of the most severe problems that surround identification of neighbourhood effects, at the cost of identifying restrictions that arise naturally from our model. We employ a unique dataset of tax audits to about 75,000 self-employed individuals in Italy. Surprisingly, this sample is not statistically different from a random sample of taxpayers. We find a social multiplier of about 3, meaning that the equilibrium response to a shock that induces an exogenous variation in mean concealed income — such as tougher or looser tax enforcement — is about three times the initial average response
    Keywords: social interactions, social multiplier, tax evasion, tax compliance, excess variance
    JEL: H26 C31 Z13 Z19
    Date: 2008–08

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