nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2015‒06‒05
six papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The Development of Accounting in Turkey and Analysis of the Accounting Culture In Terms of International Accounting and Financial Reporting Standards (IFRS) By Nilüfer Tetik; Esin Yelgen
  2. Corporate tax incentives and capital structure: empirical evidence from UK tax returns By Michael P Devereux; Giorgia Maffini; Jing Xing
  3. Corporate Tax and Location Choice for Multinational Firms By Lawless, Martina; McCoy, Daire; Morgenroth, Edgar; O'Toole, Conor
  4. Cash flow accounting and the cost of debt By Lari Dashtbayaz, Mahmoud
  6. Corruption and Entrepreneurship: Evidence from a Random Audit Program By Jamie Bologna; Amanda Ross

  1. By: Nilüfer Tetik (Akdeniz University); Esin Yelgen (Akdeniz University)
    Abstract: Culture may be defined as ‘the collective programming of the mind which distinguishes the members of one human group from another’. Each human group shares its own social norms, consisting of common characteristics, such as a value system which is adopted by the majority of constituents. Moreover accounting is determined by culture and the lack of consensus in accounting practices between countries, because the purpose of accounting is not technical but rather cultural. The culture of a country determines the choice of its accounting techniques and the perception of its various accounting phenomena. For this reason, the accounting culture is to limit the style of financial reporting by determining the principles and rules to be followed in financial reporting and by determining the principles, rules, and valuation measures that the financial reporting based on. Globalization, increase in the international movement of capital, the development of capital markets, changing conditions of competitions, legislative regulations and specialization are the factors affecting accounting culture. Another factor which affects accounting culture is the unfolding experience with the implementation of international accounting and financial reporting systems. International Financial Reporting Standard (IFRS) is formulated for the standardization of accounting regulations all over the world. A growing number of countries have adopted IFRS developed by the International Accounting Standards Board (IASB), and other countries plan to adopt or converge with IFRSs in the near future. IFRS is a set of accounting principles that is generated to support processes of principle based reporting. IFRS is very useful for making the comparability, intelligibility and transparency of the financial statements. Because accounting standards necessitate the development of one unique accounting system across the globe, this necessity leads to changes in the perceptions of accounting and thus a decline in the affect of culture on accounting. When the accounting regulations in Turkey are considered, it can be seen that accounting culture is shaped in parallel with economic and political relations. Accounting culture in Turkey has been discussed within the culture model of the Continental Europe through uniform accounting plan which has to be implemented as from 1994. On the other hand, with IFRS applications, it tends to be closer to the Anglo-American culture model. In the light of these developments, the aim of our study is to discuss the term of accounting culture theoretically; and analyze the affect of International Accounting and Financial Reporting Standards (IFRS) over accounting culture in Turkey.
    Keywords: Development of Accounting in Turkey, Hofstede-Gray Theory, Accounting Culture, Accounting Valuations and IFRS
    JEL: M49 M41 M48
    Date: 2014–10
  2. By: Michael P Devereux (Centre for Business Taxation, University of Oxford); Giorgia Maffini (Centre for Business Taxation, University of Oxford); Jing Xing (Shanghai Jiao Tong University)
    Abstract: This paper examines how companies' capital structure is affected by the corporate income tax system. Our analysis employs confidential company-level corporation tax return data in the UK. Our main identification strategy is based on variation in companies¡¯ marginal tax rates due to the existence of kinks in the corporate tax rate schedule. Using a dynamic adjustment model of capital structure, we find a positive and substantial long-run tax effect on companies' financial leverage. We show that there are considerable discrepancies between estimates of taxable profits reported in tax return data and in financial statements and that the estimated tax effect on capital structure using financial statements is likely to be biased downward. We find that companies adjust their capital structures gradually in response to changes in the marginal tax rate. Moreover, we find that the external leverage of domestic stand-alone companies and of multinational companies responds strongly to corporate tax incentives.
    Keywords: Corporate taxation, capital structure, tax returns
    JEL: G3 H2
    Date: 2015
  3. By: Lawless, Martina; McCoy, Daire; Morgenroth, Edgar; O'Toole, Conor
    Abstract: The corporate tax rate and regime are policy instruments that are the subject of considerable attention for the role they play in attracting foreign multinationals making location decisions across countries. This paper examines the effects of corporate tax on these location decisions of newly established multinational subsidiaries across 26 European countries over an eight year period. We contribute to the existing literature by examining the effects of a non-linear response of firm location decisions to changes in the tax rate. We find that accounting for this non-linearity improves the performance of the model for all of the alternative measures of the tax rate. We also show that there are large variations in the sensitivity to tax rates across sectors and firm size groups. In particular, financial sector firms are more than twice as sensitive to changes in corporation tax rates relative to other sectors.
    Keywords: Corporation Tax, Location Choice, Multinational firms, FDI
    JEL: C25 F23 H25
    Date: 2015–06–03
  4. By: Lari Dashtbayaz, Mahmoud
    Abstract: The aim of this study is to examine why firms may manipulate not just their earnings but also their cash flows, and to investigate the effects of this behaviour in debt markets with respect to the cost of debt. This research addresses current concerns about accounting rules (both GAAP and IFRS) which allow companies discretion in the presentation of their operating cash flow in financial statements. Using a sample of 8,684 UK and 23,935 USA firm-years from 1998 to 2010, the reported operating cash flow is decomposed into two components, unmanaged and managed, in order to examine the association between the estimated discretionary part of operating cash flow and the cost of debt. The results show that the cost of debt has a significantly positive association with the managed component of operating cash flows. By using path analysis, it is further shown that the effect of cash flow management in increasing the cost of debt is largely through its impact on accounting quality. Also it is found that the market positively prices abnormal operating cash flow information when firms experience financial problems, especially when companies are faced with low cash flows.
  5. By: Vukasin Lale, Maja Andjelkovic (University "Union-Nikola Tesla", Faculty for business studies and law)
    Abstract: All the credits for the transformation of social and economic structure of the developed countries on the global level go to the corporate management, but we should bear in mind that corporate management as such has transformed itself, becoming modern and very powerful. Although there are various opinions on the factors that indicate the sources of power, the following processes have had a dominant influence: 1. expansion of the knowledge base 2. development of applied technologies 3. introduction of new concepts in the management of corporations. The sequence of these concepts is random but the process of introduction of new concepts in the corporation seems to have had the greatest influence. Serbia, as a developing country, did not follow the trend of the development in this area which, after the transformation from state into private ownership, had numerous negative economic and social indications such as: growth rate, unemployment, inflation, fiscal deficit, gross domestic income (GDP), trade balance, external debt, export, investments, etc. This paper aims to point out the importance of the accounting information for the management in strengthening the competences of corporate management in the domestic economy.
    Keywords: global competition, dynamic of change in the economic structure, managing reactions, creating a new value for the owners, accounting for management, corporate management transformation
    JEL: M4 M41
    Date: 2015–01
  6. By: Jamie Bologna (West Virginia University, College of Business and Economics); Amanda Ross (West Virginia University, College of Business and Economics)
    Abstract: In this paper, we examine the effect of corruption on business activity in Brazilian municipalities. Previous research that has examined the impact of corruption has relied primarily on survey or conviction data, which may be problematic as these measures likely to be biased. We use a new measure of corruption that draws upon random audit data of municipal governments’ finances in Brazil. We find that higher levels of corruption cause reductions in the number of businesses operating in an area. Furthermore, we find that these effects become larger over time, suggesting that corruption is more detrimental to long-run economic activity. However, we find that if institutional quality is poor, then higher levels of corruption result in more businesses locating in a jurisdiction. This supports the argument that if there are poor institutions operating in an area, corruption can “grease the wheels†and is an alternative mechanism to help new businesses in the area.
    Keywords: Entrepreneurship; Corruption; Institutions
    JEL: R1 R5
    Date: 2015–05

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