nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2015‒09‒18
twelve papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The Effect of Moving to a Territorial Tax System on Profit Repatriation: Evidence from Japan By Makoto Hasegawa; Kozo Kiyota
  2. Do Small Businesses Respond to an Increase in the Probability of a Tax Audit? Evidence from a Policy Reform in Italy By Alessandro Santoro
  3. Tax loss carryforwards and corporate behavior By Masanori Orihara
  4. Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime By Brandon Gipper; Christian Leuz; Mark Maffett
  5. Taxation of Dividend Income and Economic Growth: The Case of Europe By Dackehag, Margareta; Hansson, Åsa
  6. State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data By Xavier Giroud; Joshua Rauh
  7. Local Income Taxation and Intergovernmental Relationships in Denmark -Budget cooperation in the 1980s- By Shintaro Kurachi
  8. Conceptual framework for measurement of asset depreciation on buildings By K. Kask
  10. Population Aging, Policy Reforms, and Lifetime Net Tax Rate in Japan: A Generational Accounting Approach By Manabu Shimasawa; Kazumasa Oguro; Minoru Masujima

  1. By: Makoto Hasegawa (National Graduate Institute for Policy Studies (GRIPS)); Kozo Kiyota (Keio Economic Observatory, Keio University)
    Abstract: In an increasingly globalized world, the design of international tax systems in terms of taxation on foreign corporate incomes has received much attention from policymakers and economists alike. In the past, Japanfs worldwide tax system taxed foreign source income upon repatriation. However, to stimulate dividend repatriations from Japanese-owned foreign affiliates, Japan introduced a foreign dividend exemption in 2009 that exempts dividends remitted by Japanese-owned foreign affiliates to their parent firms from home taxation. This paper examines the effect of this dividend exemption on profit repatriations by Japanese multinationals. We find that the response of Japanese-owned affiliates to the dividend exemption was heterogeneous. More particularly, foreign affiliates with a large stock of retained earnings were generally more responsive to the reform and significantly increased dividend payments to their parent firms in response to the enactment of the dividend exemption system. Dividend payments by these affiliates also became more sensitive to withholding tax rates on dividends levied by host countries under the new exemption system.
    Keywords: Local International taxation, Worldwide tax system, Territorial tax system, Profit repatriation, Dividend exemption
    JEL: H25 F23
    Date: 2015–07–15
  2. By: Alessandro Santoro
    Abstract: This paper uses a panel of administrative data concerning 71,000 Italian small businesses observed in tax years 2005-2008. The aim of the paper is to evaluate the impact of a reform of audit rules implemented in 2006. The reform repealed a special audit exemption previously granted to businesses which adopted a stringent accounting standard. It is shown that the reform increased the level of economic activity, as measured by the value of inventory, for the generality of businesses involved. However, an increase in profits and turnover was reported only by the subset of businesses which were more likely to perceive it as an increase in the probability of an audit. This result is in line with the predictions of the Allingham-Sandmo model and it casts some doubts on the possibility to reduce evasion by limiting the opportunities of manipulating accounting books.
    Keywords: Tax Evasion by Small Businesses, Audit Probabil- ity, Accounting Standard
    JEL: H25 H26 H32
    Date: 2015–09
  3. By: Masanori Orihara (Policy Research Institute, Ministry of Finance,Japan)
    Abstract: Tax losses are prevalent in the corporate sector of many countries. Firms with tax losses can deduct these losses from current or future taxable income. This deduction reduces corporate marginal tax rates and in turn can affect managerial incentives. Using industry-year level tax return data and accounting data, we show that tax loss carryforwards decrease leverage. We also show that tax loss carryforwards increase investments when the effective tax rates among the industry-year observations are considerably affected by tax loss carryforwards. Our findings suggest that the incentive effects of tax loss carryforwards on corporate behavior need to be considered in tax reforms in addition to other factors in public finance.
    Keywords: tax loss carryforward, leverage, investment
    JEL: G31 G32 H25
  4. By: Brandon Gipper; Christian Leuz; Mark Maffett
    Abstract: This paper examines how audit oversight by a public-sector regulator affects investors’ assessments of reporting credibility. We analyze whether the introduction of the Public Company Accounting Oversight Board (PCAOB) and its inspection regime have strengthened capital-market responses to unexpected earnings releases, as theory predicts when reporting credibility increases. To identify the effects, we use a difference-in-differences design that exploits the staggered introduction of the inspection regime, which affects firms at different points in time depending on their fiscal year-ends, auditors, and the timing of PCAOB inspections. We find that capital-market responses to unexpected earnings increase significantly following the introduction of the PCAOB inspection regime. Corroborating these findings, we also find an increase in abnormal volume responses to firms’ 10-K filings after the new regime. Overall, our results are consistent with public audit oversight increasing the credibility of financial reporting.
    JEL: G14 G18 G38 K22 M41 M42 M48
    Date: 2015–09
  5. By: Dackehag, Margareta (Lund University); Hansson, Åsa (Lund University)
    Abstract: More recently researchers have turned to analyze how the tax structure, rather than the overall tax level, affects economic performance. For instance, several papers have investigated how taxation on corporate and individual (labor) income influences growth. Taxation of dividend income may also influence growth via its impact on investments and firm behavior. Within the academic community there is conflicting views about the impact taxation of dividends has on firm behavior and, hence, on economic performance. According to the "traditional view", taxation of dividends is distortionary and increases the cost of equity. According to the "new view", taxation of dividends does not influence the marginal cost of capital and consequently has no impact on investment decisions. To our knowledge, this paper is the first study to explore how tax rates on dividends affect economic growth, by using panel data from 1990 till 2008 for 18 European countries. We find that taxation of dividend income negatively influences economic growth, a result that corroborates the old view of dividends taxation as distortionary and also has some policy implication for the European countries in question.
    Keywords: Economic growth; Taxation of corporate income; Taxation of personal income
    JEL: H21 H24 H25 O40
    Date: 2015–08–31
  6. By: Xavier Giroud; Joshua Rauh
    Abstract: In a sample of over 27 million establishments of U.S. firms with activities in more than one state, we estimate the impact of state business taxation on business activity. Only firms organized as subchapter C corporations are subject to the corporate tax code, whereas the income of partnerships, sole-proprietorships, and S corporations is passed through annually to the firm's owners and taxed at individual rates. For C corporations, both employment at existing establishments (intensive margin) and the number of establishments in the state (extensive margin) have corporate tax elasticities of -0.4. Pass-through entities, which serve as a control group for the corporate tax reforms, respond only to the personal tax code, with tax elasticities of -0.2 to -0.3. Around half of the effects are driven by reallocation of productive resources to other states where the treated firms have establishments. Capital shows similar patterns but is 36% less elastic than labor. A narrative approach confirms that the results are robust and strongest in the sample of tax changes that were implemented due to inherited budget deficits, long-run goals, or cross-state variation caused by Federal tax reforms.
    JEL: H25 H71 H73
    Date: 2015–09
  7. By: Shintaro Kurachi (Graduate School of Economics, Keio University)
    Abstract: The aim of this article is to analyze the role of the tax authorities of local governments in intergovernmental negotiations. The Danish local income tax rate is set by each local government. However, the average tax rate is set as per the intergovernmental agreement. Since the 1980s, the local tax authorities and those that control central expenditure were in conflict with each other . This article focuses on the Extended Total Balance Principle (Det Udvidede Totalbalanceprincip) as it resolves this problem to an extent. This principle states that the central government is forbidden from assigning new tasks without providing the requisite funding and from carrying out the central economic policy without taking into consideration the effect of municipal tax revenues. During the process of agreement about this principle, local governments could insist on their own requirements because of their strong tax authority.
    Keywords: Local income taxation, Denmark, Intergovernmental relationships, Budget Cooperation, Tax authority
    JEL: H71 H72 H77
    Date: 2015–03
  8. By: K. Kask
    Abstract: Asset depreciation is an important issue in many economic decisions made either by private or public sector institutions in all times. For example, the methodology and measurement issues of asset depreciation are influencing capital budgeting decisions in corporate finance and also major capital expenditure decisions that concern public sector long-term investments. As the depreciable assets come in many forms, there is still large gaps in literature that need to be filled in order to develop comprehensive estimates of depreciation for tax and accounting purposes (Hulten 2008: 1). Also, as it is asserted by Diewert (2005), the accounting for the contribution of capital to production is more difficult than accounting for the contributions of labor or materials, because – when a reproducible capital input is purchased for use by a production unit at the beginning of an accounting period, it is not possible to simply charge the entire purchase cost to the period of purchase. Since the benefits of using the capital asset extend over more than one period, the initial purchase cost must be distributed somehow over the useful life of the asset. This is the fundamental problem of accounting (Diewert 2005: 480), which has been solved by the calculation of asset depreciation. The current literature about depreciation in general is very broad and well-researched and it may seem that everything in that field has been done already. Nevertheless, looking more thoroughly the overwhelming literature written about asset depreciation, the author of the current paper has found that there is a lack of systematic approach to the background of the topic with thorough theorization about the connections and links with other relevant problems, like capital expenditure, user cost of capital, asset price and asset rental price. Therefore, the aim of the current paper is to develop a systematic theoretical framework for a building asset depreciation concept that would integrally account all the mentioned co-factors, stemming from the fact that building asset does have some special features over other (durable) assets like vehicles and machinery. The paper also sets up a research question, whether at the long-run equilibrium level, the cost of capital used to discount the cash flows from the building asset, should equal at least the depreciation rate of the same asset?
    Keywords: Asset Depreciation; Asset Rental Price; Building Maintenance; Capital Expenditure; User Cost Of Capital
    JEL: R3
    Date: 2015–07–01
  9. By: Assawer Elaoud (Université de Sfax - University of Sfax, Tunisia); Anis Jarboui (Université de Sfax - University of Sfax, Tunisia)
    Abstract: This study examines the impact of the quality of accounting information and the auditor specialization on the investment efficiency. We find that the quality of accounting information has a significant effect on the investment efficiency for a company with an auditor is a specialist. The higher accounting information quality can improve investment efficiency by reducing information asymmetries. The results show that the quality of accounting information reduces the problems of over-investment and that the auditor industry specialization reduces underinvestment problems. In addition, our results show that the auditor specialization and the quality of accounting information are two mechanisms with a degree of substitution in improving the investment efficiency.
    Abstract: Cette étude examine l’impact de la qualité de l'information comptable et la spécialisation de l’auditeur sur l’efficacité de l’investissement dans le contexte tunisien. Nous constatons que la qualité de l’information comptable a un effet significatif sur l’efficacité de l’investissement pour les entreprises dont un auditeur est un spécialiste. Les résultats montrent que la qualité de l'information comptable diminue les problèmes de surinvestissement, la spécialisation sectorielle de l’auditeur peut réduire les problèmes de sous-investissement. En outre, nos résultats montrent que la spécialisation de l’auditeur et la qualité de l'information comptable sont deux mécanismes avec un certain degré de substitution dans l'amélioration de l'efficacité des investissements.
    Date: 2015–05–19
  10. By: Manabu Shimasawa (Senior Researcher National Institute for Research Advancement); Kazumasa Oguro (Associate Professor Faculty of Economics, Hosei University); Minoru Masujima (Director for Macroeconomic Analysis Cabinet Office, Government of Japan)
    Abstract: We employed the Generational Accounting model in estimating the generation-specific lifetime (both past and the future) benefits/burdens and income and evaluating their values as of 2010, thus estimating the lifetime net burden ratio (= lifetime net burden/lifetime income). As a result, the following points were elucidated: 1) Among the current living generations, the lifetime net burden ratio of the 0-year-old generation is about 25 percentage points higher than that of the current 90-year-old generation; 2) The lifetime net burden ratio of the future generations is about 31 percentage points higher than that of the 0-year-old generation; 3) The net burden of the current generations would have to be increased in order to narrow the generational gap between the current generations and the future generations, which would inevitably lead to an expansion of the intragenerational gap of the current generations; and 4) In order to prevent conflict of interest between the current generations, in particular the younger generations and future generations, and at the same time, narrow the intergenerational gap, it is desirable to increase the income of the current generations, in particular that of the younger generations, by achieving a high economic growth rate and implementing macroeconomic policy management that would inhibit increase in the risk premium included in the interest rate.
    Keywords: Generational Accounting, falling birthrates and aging population, fiscal sustainability, government debt
    JEL: H61 E62 B41
  11. By: Christine Marsal (MRM - Montpellier Research in Management - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School - Université Paul Valéry - Montpellier III - UM2 - Université Montpellier 2 - Sciences et Techniques - UM1 - Université Montpellier 1)
    Abstract: Basel Committee on banking supervision issued consultative document on corporate governance principles for banks. The second principle argue that board members should and remain qualified in economics ans finance. So banks could be obliged to change the board to be compliant with this principle. Cooperative banks have been involved in this evolution, for many years. This recommandation, give us the opportunity to know how a board could be removed (to be more diversified) and what are the consequences on the audit committte functionning. Our result shows that this kind of change encounter many resistances, and the news skills come both from training than recruiting new administrators. The training process have no influence on audit quality and independancy. Training is strongly associated with poorly diversified board.
    Abstract: Les dernières recommandations du comité de Bâle insistent sur les compétences et connaissances des administrateurs en matière financière. Cela implique que les administrateurs se professionnalisent, ce qui peut conduire à renouveler une partie du conseil d'administration (CA). L'observation des pratiques de 16 caisses régionales de crédit agricole, sur une durée de 7 ans permet d'analyser comment les établissements ont composé avec de type de contrainte. Les résultats indiquent que la diversification des CA est variable. Les politiques actives de formation n'ont aucun effet sur le fonctionnement du comité d'audit, elles sont fortement associées au fonctionnement de comités liés au pilotage des caisses. Les compétences économiques et financières contribuent à la compétence du comité d'audit. Les implications managériale concernent à la fois le recrutement des administrateurs que les politiques de formation mises en oeuvre.
    Date: 2015–05–19
  12. By: Sarah Maire (CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - Université Nancy II - Université de Metz)
    Abstract: Completing current research on hybrid organization in neo-institutional theory, this paper explores the coexistence, without competition, of two institutional logics and their practices, framed with different rationality in a same organization. More precisely, we focused on the two logics present in a non-profit and religious organization of scouting. Through annuals reports collected from 1983 to 2013, participant observation, discussions and audit reports, we observed the coevolution of accountability logic based on instrumental rationality and religion logic based on a belief-oriented rationality. Our results suggest the coexistence of logics and their practices, even if they have different rationality.
    Abstract: Dans le cadre de la théorie néo-institutionnelle et pour approfondir la recherche sur les organisations hybrides, ce papier développe la coexistence de deux logiques institutionnelles et de leurs pratiques, fondées sur différentes rationalités et ce au sein d'une même organisation. Nous nous sommes concentrés sur les deux logiques présentes dans une organisation religieuse à but non-lucratif, une association de scoutisme français. A travers des rapports annuels collectés de 1983 à 2013, de l'observation participante, des discussions avec les membres et les rapports de commissariat aux comptes, nous avons pu observer la coexistence de la logique d'accountability, basée sur une rationalité en finalité et une logique religieuse, basée sur une rationalité en valeur. Nous résultats tendent à montrer que les logiques arrivent à coexister et que les pratiques coexistent également, malgré des rationalités différentes.
    Date: 2015–05–19

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