nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2016‒04‒04
six papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The Timeliness of UK Private Company Financial Reporting: Regulatory and Economic Influences By Mark Clatworthy; Michael Peel
  2. Corporate Tax: A brief assessment of some exemptions. By Rao, R. Kavita; Tandon, Suranjali; Mukherjee, Sacchidananda
  3. Accelerated Depreciation, Default Risk and Investment Decisions By Paolo M. Panteghini; Sergio Vergalli
  4. A study on the Finnish R&D tax credit of the years 2013–2014 By Kuusi, Tero; Pajarinen, Mika; Rouvinen, Petri; Valkonen, Tarmo
  5. Downsizing, Impairment Recognition Timing, and Non-Executive Employee Ownership: A Japanese Perspective By Keishi Fujiyama
  6. Some Theoretical Connections Among Wealth, Income, Sustainability, and Accounting By Martin L. Weitzman

  1. By: Mark Clatworthy; Michael Peel
    Abstract: This paper investigates the effects of both regulation and economic demand on the timeliness of UK private companies' accounting information. We study companies' response to a one month shortening of the statutory filing deadline and hypothesise that companies using accounting to communicate financial information to outside capital providers will be timelier in filing their accounts and less affected by the regulatory change than firms preparing accounts for tax and compliance purposes. Our results indicate that companies producing accounting information for reporting to outside investors publish their accounts significantly more quickly than those filing for compliance/tax reasons, though the change in regulation significantly affects both types of companies. We find a reduction in the average filing time, though the proportion of firms filing late increases after the regulatory change. In addition to incurring financial and non-financial penalties, filing after the statutory limit has important economic consequences because our results show that firms filing late have significantly lower credit ratings. We conclude that both regulatory and fundamental factors are important in private company financial reporting and that the two are sometimes interdependent.
    Date: 2016–03–16
  2. By: Rao, R. Kavita (National Institute of Public Finance and Policy); Tandon, Suranjali (National Institute of Public Finance and Policy); Mukherjee, Sacchidananda (National Institute of Public Finance and Policy)
    Abstract: Government of India proposes to reduce the number of tax incentives built into the corporate tax regime and alongside reduce the statutory tax rate on corporate tax to 25 percent. Beneficiaries of the incentive regime tend to argue that these regimes provide tangible benefits which induce higher level of activity within the economy and hence, phasing these out can be detrimental for the Indian economy. An attempt is made in this paper to briefly assess what can be inferred from available evidence on the effectiveness of the incentive regimes. The focus is on three such schemes, incentives provided for investment in backward areas, incentives for special economic zones and incentives provided for expenditure on research and development.
    Keywords: Area based exemption ; SEZ ; R D ; Corporate tax
    JEL: H25 E62 H32
    Date: 2016–03
  3. By: Paolo M. Panteghini (Università degli Studi di Brescia, CESifo and AccounTax Lab); Sergio Vergalli (Università degli Studi di Brescia and Fondazione Eni Enrico Mattei (FEEM))
    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
    JEL: H2
    Date: 2016–03
  4. By: Kuusi, Tero; Pajarinen, Mika; Rouvinen, Petri; Valkonen, Tarmo
    Abstract: In this report, we analyze the Finnish R&D tax incentive scheme of the years 2013 and 2014. Under the scheme, firms were eligible for double corporate tax deduction incentive on labor expenses incurred for undertaking R&D activities. Our report consists of a literature review, an empirical analysis of the Finnish register data, and an internet survey. We find that the scheme failed to reach its anticipated impact. The deduction was claimed far less than expected, the actual tax loss being only 8 % of the expected tax loss. Furthermore, our analysis suggests that the R&D tax incentive failed to reach clear, blind spots in the current Finnish, mainly direct-subsidy-based innovation system. Although the scheme’s design does not allow an unambiguous analysis of its impact on the R&D expenditure, our tentative results suggests that its impact remained rather small. The previous, international literature shows that the R&D tax incentives have an increasing effect on the R&D expenditures, but the impact tends not to exceed the amount of the tax subsidy. Based on our results it is unlikely that even a better-designed R&D tax deduction scheme would bring great value-added to the current, Finnish innovation system.
    Keywords: R&D, tax credits
    JEL: O38 H25
    Date: 2016–03–11
  5. By: Keishi Fujiyama (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: It has been suggested in the literature that—given the long-term relationship between firms and employees—managers accelerate conservative accounting in prospect of employee negotiations to inform their employees of the firms' underlying economics. This study extends the existing literature by investigating whether a variation in employee influence in firms leads to different impairment accounting practices. Specifically, in the investigation of Japanese firms operating in a society where collective dismissals are difficult to implement, I find that firms with strong employee influence are less likely to downsize their employees, suggesting that such firms face stronger resistance from employees than those with weak employee influence. I also find that firms with strong employee influence that are contemplating downsizing recognize fixed asset impairment losses earlier than those with weak employee influence, suggesting that such an accounting practice by downsizing firms with strong employee influence elicits concessions from employees. In addition, the results indicate that shareholders and management also make concessions around downsizing implementation. Overall, the findings of this study suggest that accounting practices chosen by firms with strong employee influence are derived not from opportunistic purposes, but from informative motives.
    Keywords: Labor negotiation, Fixed asset impairment, Employee ownership, Downsizing
    JEL: G34 J54 M41
    Date: 2016–03
  6. By: Martin L. Weitzman
    Abstract: In theory, and under some quite strong assumptions, there exists an important rigorous quantitative relationship among the following four fundamental economic concepts: (1) "wealth"; (2) "income"; (3) "sustainability"; (4) "accounting". These four basic concepts are placed in quotation marks here because a necessary first step will be to carefully and rigorously define what exactly is meant by each concept. In this paper, I review what is known about this important four-fold quantitative relationship in an ultra-simplified setting. I identify some basic applications of this simplified economic theory of wealth and income (and sustainability and accounting). While the contents of this paper are expressed at a very high level of abstraction and require some restrictive assumptions, I believe that the fundamental four-fold relationship it sharply highlights is useful for understanding, at least in principle, what is "wealth" and what is its theoretical relationship to "income," "sustainability," and "accounting."
    JEL: Q01 Q2 Q5
    Date: 2016–03

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