nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2009‒03‒22
four papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The Psychological Attraction Approach to Accounting and Disclosure Policy By Hirshleifer, David; Teoh, Siew Hong
  2. Bank Capital Requirements and Capital Structure By John P. Harding; Xiaozhong Liang; Stephen L. Ross
  3. Why do countries adopt International Financial Reporting Standards? By Karthik Ramanna; Ewa Sletten
  4. Finanzpolitik und Produktionspotential in Deutschland: 1991-2008 By Alfred Boss

  1. By: Hirshleifer, David; Teoh, Siew Hong
    Abstract: We offer here the psychological attraction approach to accounting and disclosure rules, regulation, and policy as a program for positive accounting research. We suggest that psychological forces have shaped and continue to shape rules and policies in two different ways. (1) Good Rules for Bad Users: rules and policies that provide information in a form that is useful for users who are subject to bias and cognitive processing constraints. (2) Bad Rules: superfluous or even pernicious rules and policies that result from psychological bias on the part of the ‘designers’ (managers, users, auditors, regulators, politicians, or voters). We offer some initial ideas about psychological sources of the use of historical costs, conservatism, aggregation, and a focus on downside outcomes in risk disclosures. We also suggest that psychological forces cause informal shifts in reporting and disclosure regulation and policy, which can exacerbate boom/bust patterns in financial markets.
    Keywords: Investor psychology; accounting regulation; disclosure policy; salience; omission bias; scapegoating; limited attention; overconfidence; conservatism; loss aversion; accrual; smoothing; mental accounting; historical cost; risk disclosure; value-at-risk.
    JEL: M40 M4 H10 K22 G38 G28 G0
    Date: 2009–03–11
  2. By: John P. Harding (University of Connecticut); Xiaozhong Liang (State Street Corporation); Stephen L. Ross (University of Connecticut)
    Abstract: This paper studies the impact of capital requirements, deposit insurance and tax benefits on a bank's capital structure. We find that properly regulated banks voluntarily choose to maintain capital in excess of the minimum required. Central to this decision is both tax advantaged debt (a source of firm franchise value) and the ability of regulators to place banks in receivership stripping equity holders of firm value. These features of our model help explain both the capital structure of the large mortgage Government Sponsored Enterprises and the recent increase in risk taking through leverage by financial institutions.
    Keywords: Banks, Capital Structure, Capital Regulation, Financial Intermediation, Leverage, GSE, Investment Banks
    JEL: G21 G28 G32 G38
    Date: 2009–02
  3. By: Karthik Ramanna (Harvard Business School, Accounting and Management Unit); Ewa Sletten (MIT Sloan School of Management)
    Abstract: In a sample of 102 non-European Union countries, we study variations in the decision to adopt International Financial Reporting Standards (IFRS). There is evidence that more powerful countries are less likely to adopt IFRS, consistent with more powerful countries being less willing to surrender standard-setting authority to an international body. There is also evidence that the likelihood of IFRS adoption at first increases and then decreases in the quality of countries' domestic governance institutions, consistent with IFRS being adopted when governments are capable of timely decision making and when the opportunity and switching cost of domestic standards are relatively low. We do not find evidence that levels of and expected changes in foreign trade and investment flows in a country affect its adoption decision: thus, we cannot confirm that IFRS lowers information costs in more globalized economies. Consistent with the presence of network effects in IFRS adoption, we find that a country is more likely to adopt IFRS if other countries in its geographical region are IFRS adopters.
    Date: 2009–01
  4. By: Alfred Boss
    Abstract: In recent years, a lot of rules concerning government expenditures as well as tax revenues were changed in Germany. Government expenditures in relation to GDP were reduced, income tax rates were lowered and the budget deficit declined. The structure of government expenditures changed in favor of productive expenditures, tax expenditures were reduced. It is concluded that the growth of potential output accelerated in recent years
    Keywords: Fiscal policy, tax burden, government expenditures, potential output
    JEL: H10 H30 H60
    Date: 2009–03

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