nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2016‒03‒23
nine papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Incumbent audit firm-provided tax services and clients with low financial reporting quality By Emma-Riikka Myllymäki
  2. The History Of The "Reverse Taxation" In Romania For The Operations Concerning The Value - Added - Tax (VAT) By Antonescu, Mihail; Antonescu, Ligia
  3. Hedonic Regression Models for Tokyo Condominium Sales By Diewert, W. Erwin; Shimizu, Chihiro
  4. Taxation, information, and withholding : evidence from Costa Rica By Brockmeyer,Anne; Hernandez,Marco
  5. The tax burden on banks over the period 2006-2014 By Giacomo Ricotti; Marco Burroni; Vincenzo Cuciniello; Elena Padovani; Elena Pisano; Stefania Zotteri
  6. Sharing Risk with the Government: On the Causal Effects of Taxes on Corporate Risk-Taking By Alexander Ljungqvist; Liandong Zhang; Luo Zuo
  7. Accelerated Depreciation, Default Risk and Investment Decisions By Panteghini, Paolo M.; Vergalli, Sergio
  8. Dynamic R&D Choice and the Impact of the Firm's Financial Strength By Bettina Peters; Mark J. Roberts; Van Anh Vuong
  9. Do Tax Incentives for Research Increase Firm Innovation? An RD Design for R&D By Antoine Dechezleprêtre; Elias Einiö; Ralf Martin; Kieu-Trang Nguyen; John Van Reenen

  1. By: Emma-Riikka Myllymäki (Accounting and Finance University of Vaasa)
    Abstract: This study investigates whether incumbent audit firm-provided tax services enhance or impair the likelihood of acknowledging client companies’ low financial reporting quality. In particular, we examine the association between tax-related fees and the likelihood of timely restatements, and internal control weakness disclosures among a sample of US companies that all have misstatements in financial information. The empirical findings indicate that companies paying higher tax-related fees are less likely to disclose SOX 404 internal control weakness disclosures, implying that underlying control problems are unacknowledged when incumbent audit firmprovided tax-related fees are higher. However, the findings suggest that just providing both audit and tax-related services does not have an impact on audit quality per se, but rather it is the magnitude of the tax-related fees in particular that counts. We also find some evidence suggesting that companies paying higher tax-related fees have higher likelihood of restatement lags, whereas companies paying smaller tax-related fees to their audit firm restate financial statements in a timelier manner. Overall, the findings suggest that audit scrutiny of client companies with low quality financial reporting is weaker when the magnitude of tax-related fees is higher.
    Date: 2014–09
  2. By: Antonescu, Mihail; Antonescu, Ligia
    Abstract: Abstract — In accordance with the stipulation of the VIth Title concerning the Value - Added - Tax (VAT) from the Fiscal Code, the suppliers and the beneficiaries of certain goods and/or services, registered with the purpose of obtaining the value-added-tax, are obliged to apply simplification rules called "reverse taxation". The supplier is obliged to write on the bills he emits the mention "reverse taxation" without writing the corresponding tax, and the beneficiary will calculate the tax, he will register it in the shopping day book and he will show it in the break up tax, as a collected tax, and also as a deducted tax, without paying the tax to the supplier.
    Keywords: Reverse Taxation, Value - Added - Tax (VAT), Fiscal Legislation
    JEL: H25
    Date: 2014–11
  3. By: Diewert, W. Erwin; Shimizu, Chihiro
    Abstract: The paper fits a hedonic regression model to the sales of condominium units in Tokyo over the period 2000-2015. The problem is complicated by the need to decompose the selling price of a unit into a component that can be attributed to the structure area of the unit and another component that can be attributed to the unit's share of land value. There is very little information on the value of condominium land and so this paper develops a methodology for reducing this knowledge gap. The paper extends the builder's model which was developed in Eurostat (2013)[11]. Characteristics which prove to be important in explaining condominium prices are: the floor space area of the unit, the total land area of the building, the number of units in the building, the total number of stories in the building, the height of the sold unit, the age of the structure and the amount of excess land. The paper also derives an estimate for the annual geometric structure depreciation rate for condominiums in Tokyo.
    Keywords: Condominium property price indexes, System of National Accounts, Balance Sheets, methods of depreciation, land and structure price indexes, hedonic regressions
    JEL: C2 C23 C43 E31 R21
    Date: 2016–01
  4. By: Brockmeyer,Anne; Hernandez,Marco
    Abstract: This paper studies tax withholding on business sales, a widely used compliance mechanism which is largely ignored by public finance theory. The study introduces a withholding scheme, whereby the payer in a transaction collects tax from the payee, in a standard evasion model. If the taxpayer can fully reclaim the tax withheld, withholding is irrelevant to her evasion decision. If reclaim is costly, however, withholding establishes a compliance default. To show this empirically, the analysis exploits a ten-year panel of registration, income tax and sales tax records from 400,000 firms in Costa Rica, and over 20 million third-party information and withholding reports. The paper first documents the anatomy of compliance, providing novel measures of compliance gaps on the extensive, intensive and payment margins. It then shows that interventions leveraging the existing third-party information reduce these compliance gaps only marginally. Coverage by a withholding scheme, in contrast, is correlated with higher reported taxable income both across firms and within firms across time. Quasi-experimental estimations show that a doubling of the withholding rate leads to a 40 percent increase in tax payment among treated firms and a 10 percent increase in aggregate revenue. The mechanisms are incomplete reclaim of the tax withheld and reduced misreporting.
    Keywords: Debt Markets,Tax Law,Taxation&Subsidies,Emerging Markets,Transport Economics Policy&Planning
    Date: 2016–03–14
  5. By: Giacomo Ricotti; Marco Burroni (Banca d'Italia); Vincenzo Cuciniello (Banca d'Italia); Elena Padovani (Banca d'Italia); Elena Pisano (Banca d'Italia); Stefania Zotteri (Banca d'Italia)
    Abstract: Following the establishment of the Single Supervisory Mechanism (SSM), concerns about having a level playing field become more important due to the heterogeneity in bank taxation rules across Europe: measuring the tax burden can provide a first rough measure of the extent of heterogeneity across countries. After a review of the main differences in banks taxation between Italy, France, Germany, Spain and the UK, the paper provides estimates for the tax burden and deferred tax assets in these countries over the years 2006-2014; the impact of differences in taxation on bank profitability is also examined. Moreover, the paper carries out a more in-depth analysis of Italian banks by considering both individual balance sheet data and aggregate tax return data. The impact of tax measures on financial stability and on profitability is further analysed. The comparative analysis points to a wide heterogeneity across countries in the tax treatment of the banking sector. This suggests that it would be advantageous to explore possible ways to make the tax systems of the countries participating in the SSM more homogeneous; a first step could be to harmonize tax bases.
    Keywords: banking, taxation
    JEL: G21 H25 H87 K34
    Date: 2016–02
  6. By: Alexander Ljungqvist; Liandong Zhang; Luo Zuo
    Abstract: Using a natural experiment in the form of 113 staggered changes in corporate income tax rates across U.S. states, we provide causal evidence on how taxes affect corporate risk-taking decisions. Higher taxes are expected to reduce the expected profit per unit of risk, as the government shares in a firm’s upside but not in its downside. Consistent with this prediction, we find that firms respond to tax increases by reducing risk. We find no corresponding sensitivity to tax cuts, suggesting that firms find it easier to reduce risk than to increase it. Tax loss-offset rules moderate firms’ sensitivity to taxes by allowing firms to partly share downside risk with the government.
    JEL: G32 H32
    Date: 2015–12
  7. By: Panteghini, Paolo M.; Vergalli, Sergio
    Abstract: In this article we focus on a representative firm that can decide when to invest under default risk. On the one hand, this firm can benefit from generous tax depreciation allowances, on the other hand it faces a default risk. Our aim is to study the effects of tax depreciation allowances in a risky environment. As will be shown in our numerical analysis, generous tax depreciation allowances lead to a decrease in a firm’s leverage and, in most cases, cause a reduction in default risk. This result has a strong policy implication, in that it shows that an investment stimulus pack is expected neither to increase the default risk nor to cause financial instability.
    Keywords: Capital Structure, Contingent Claims, Corporate Taxation and Hybrid Securities, Risk and Uncertainty, H2,
    Date: 2016–03–01
  8. By: Bettina Peters; Mark J. Roberts; Van Anh Vuong
    Abstract: This article investigates how a firm's financial strength affects its dynamic decision to invest in R&D. We estimate a dynamic model of R&D choice using data for German firms in high-tech manufacturing industries. The model incorporates a measure of the firm's financial strength, derived from its credit rating, which is shown to lead to substantial differences in estimates of the costs and expected long- run benefits from R&D investment. Financially strong firms have a higher probability of generating innovations from their R&D investment, and the innovations have a larger impact on productivity and profits. Averaging across all firms, the long run benefit of investing in R&D equals 6.6 percent of firm value. It ranges from 11.6 percent for firms in a strong financial position to 2.3 percent for firms in a weaker financial position.
    JEL: O3
    Date: 2016–02
  9. By: Antoine Dechezleprêtre; Elias Einiö; Ralf Martin; Kieu-Trang Nguyen; John Van Reenen
    Abstract: We present the first evidence showing causal impact of research and development (R&D) tax incentives on innovation outcomes. We exploit a change in the asset-based size thresholds for eligibility for R&D tax subsidies and implement a Regression Discontinuity Design using administrative tax data on the population of UK firms. There are statistically and economically significant effects of the tax change on both R&D and patenting, with no evidence of a decline in the quality of innovation. R&D tax price elasticities are large at about 2.6, probably because the treated group is from a sub-population subject to financial constraints. There does not appear to be pre-policy manipulation of assets around the thresholds that could undermine our design, but firms do adjust assets to take advantage of the subsidy post-policy. We estimate that over 2006-11 business R&D would be around 10% lower in the absence of the tax relief scheme.
    Keywords: R&D, patents, tax, innovation, Regression Discontinuity design
    JEL: O31 O32 H23 H25 H32
    Date: 2016–03

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