nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2013‒08‒05
seven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Benefits and Costs of Auditor's Assurance: Evidence from the Review of Quarterly Financial Statements By Jean Bédard; Lucie Courteau
  2. Economic Growth, Tax Evasion and Tax Monitoring Expenses: An Empirical Analysis in OECD Countries By Konstantinos Chatzimichael; Pantelis Kalaitzidakis; Vangelis Tzouvelekas
  3. Redistribution and Tax Evasion: an Asymmetric Information Approach By Silvia Platoni; Francesco Timpano
  4. Tax Me If You Can! Optimal Nonlinear Income Tax between Competing Governments By LEHMANN, Etienne; Simula, Laurent; TRANNOY, Alain
  5. Taxing Hard-to-Tax Markets By Marcelo Arbex; Enlinson Mattos; Laudo M. Ogura
  6. Corporate governance of banks: A survey By Jakob de Haan; Razvan Vlahu
  7. The causal effect of venture capital backing on the underpricing of Italian IPOs By Pennacchio, Luca

  1. By: Jean Bédard (Université Laval.); Lucie Courteau (Free University of Bozen-Bolzano, School of Economics and Management.)
    Abstract: Even though there is a worldwide consensus as to the necessity of an audit of annual financial statements for public companies, there is divergence of views as to the review of interim financial statements. While some jurisdictions make it mandatory (e.g., Australia, France, US), others allow the review without requiring it (e.g., Canada, UK). Using a sample of companies listed in Canada, we examine the costs associated with these reviews and the benefits they generate in terms of improvement in the quality of interim financial statements for the years 2004 and 2005. Controlling for the decision to purchase the reviews, we find that audit fees are 18 percent higher for firms with interim reviews and, contrary to many regulators’ assumption, we find no evidence that this cost increase is proportionally higher for smaller firms. Regarding the benefits of interim reviews, we find no significant association between either accruals- or non accruals-based measures of earnings management and the fact that the interim statements are reviewed by the auditor, neither in the interim reports nor in those of the fourth quarter. The results suggest that auditors’ involvement with interim reports may not be as effective as previously thought at controlling the quality of interim financial statements.
    Keywords: Interim Financial Reporting, Auditor Reviews, Regulation, Audit Fees, Unexpected Accruals.
    JEL: G38 M41 M49
    Date: 2013–07
  2. By: Konstantinos Chatzimichael (Dept of Economics, University of Crete, Greece); Pantelis Kalaitzidakis (Dept of Economics, University of Crete, Greece); Vangelis Tzouvelekas (Department of Economics, University of Crete, Greece)
    Abstract: Using Kalaitzidakis and Kalyvitis (2004) approach, we extent Roubini and Sala-i-Martin (1993) endogenous growth model to analyse empirically the relationship between economic growth, announced tax rate and tax monitoring expenses using data from OECD countries during the 1999-2007 period. Our results indicate that high announced tax rates above the elasticity of public capital and excess expenses on tax auditing as means of reducing tax evasion are not effective deepening rather recession.
    Keywords: announced tax rate, tax monitoring, tax evasion, GDP growth
    JEL: H21 H26 H54
    Date: 2013–06–29
  3. By: Silvia Platoni (DISCE, Università Cattolica); Francesco Timpano (DISCE, Università Cattolica)
    Abstract: The article studies the optimal redistribution system, achieved by direct taxation, indirect taxation and public provision of the pseudo-necessary good, when individuals, who differ in productivity, can take hidden actions (tax evasion by moral hazard) and have hidden information (tax evasion by adverse selection). It proves that any Government willing to effectively reallocate resources among individuals has to undertake measures against tax evasion, i.e. to establish tax evasion fines.
    Keywords: Redistribution; Tax Evasion; Asymmetric Information.
    JEL: H23 H42 H26 D82
    Date: 2013–07
  4. By: LEHMANN, Etienne (CRED (TEPP), Universit´e Panth´eon-Assas & CREST); Simula, Laurent (Uppsala Center for Fiscal Studies); TRANNOY, Alain (Aix-Marseille Universit´e (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: We investigate how the optimal nonlinear income tax schedule is modified when taxpayers can evade taxation by emigrating. We consider two symmetric countries with Maximin governments. Workers choose their labor supply along the intensive margin. The skill distribution is continuous, and, for each skill level, the distribution of migration cost is also continuous. We show that optimal marginal tax rates are nonnegative at the symmetric Nash equilibrium when the semi-elasticity of migration is decreasing in the skill level. When the semi-elasticity of migration is increasing in the skill level, either optimal marginal tax rates are positive everywhere or they are positive for the lower part of the skill distribution and then negative. Numerical simulations are calibrated using plausible values of the semi-elasticity of migration for top income earners. We show that the shape of optimal tax schedule varies significantly, depending on the profile of the semi-elasticity of migration over the entire skill distribution - a profile over which we lack empirical evidence.
    Keywords: Optimal Income Tax; Income Tax competition; Migration; Labor Mobility; Nash-Equilibrium Tax Schedules
    JEL: D82 H21 H87
    Date: 2013–07–24
  5. By: Marcelo Arbex (Department of Economics, University of Windsor); Enlinson Mattos (São Paulo School of Economics, Getulio Vargas Foundation); Laudo M. Ogura (Economics Department, Grand Valley State University)
    Abstract: Tax enforcement costs constrain the government?s ability to observe economic transactions, giving rise to hard-to-tax (HTT) markets. In these markets transactions are untaxed and consumers are better off than in taxed markets. This paper studies a novel approach to combat evasion in HTT markets: consumer auditing, which rewards consumers for requesting transaction receipts. We develop a Hotelling-type spatial model of sales taxation to analyze the welfare and distributional effects of the implementation of this policy. We find that consumer auditing allows for a lower tax rate and greater provision of the public good in the economy. We show that this policy not only can enhance welfare, but also equalize utilities of consumers across markets.
    Keywords: taxation; hard-to-tax; tax evasion.
    JEL: H1 H21 H26
    Date: 2013–08
  6. By: Jakob de Haan; Razvan Vlahu
    Abstract: This paper reviews the empirical literature on the corporate governance of banks. We start by highlighting the main differences between banks and non-financial firms and focus on three characteristics which make banks special: (i) regulation, (ii) the capital structure of banks, and (iii) the complexity and opacity of their business and structure. Next, we discuss the characteristics of corporate governance in banks and how they differ from the governance of non-financial firms. We then review the evidence on three governance mechanisms: (i) boards, (ii) ownership structures, and (iii) executive compensation. Our review suggests that some of the empirical regularities found in the literature on corporate governance of nonfinancial institutions, such as the positive (negative) association between board independence (size) and performance, do not hold for banks. Also, existing work provides less than conclusive results regarding the relation between different governance mechanisms and various measures for banks’ performance. We discuss potential explanations for these mixed results.
    Keywords: banking; governance; boards; bank ownership; executive remuneration
    JEL: G21 G34 G35
    Date: 2013–07
  7. By: Pennacchio, Luca
    Abstract: This paper analyses the role of venture capitalists in Italian Initial Public Offerings (IPOs). Between 1999 and 2012 venture capital backed IPOs are on average less underpriced than non-venture backed IPOs. By using both a matching and a regression-based approach to account for the non-random distribution of venture financing across firms, I show that the underpricing difference is actually due to the causal effect of venture capital backing and that the raw comparison of the sample means underestimates such an effect. The result is consistent with the certification hypothesis, that is, certifying that the value of issuing firms reflects all relevant inside information, venture capital backing reduces the asymmetric information problem that arises in the IPO process.
    Keywords: Venture capital, IPOs, Certification Hypothesis, Underpricing
    JEL: G14 G24 G32
    Date: 2013–01

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