nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2017‒01‒29
four papers chosen by

  1. Sustainability of an economy relying on two reproducible assets By Robert D. Cairns; Stellio Del Campo; Vincent Martinet
  2. Micro foundations in the Great Divergence debate: opening up a new perspective By Luca Zan; Kent Deng
  3. Competing for Capital: Auditing and Credibility in Financial Reporting By Raphael Boleslavsky; Bruce Carlin; Christopher Cotton
  4. Causal Reasoning in Corporate Annual Reports: The Truth and Nothing But the Truth? By René Fahr; Anica Rose

  1. By: Robert D. Cairns; Stellio Del Campo; Vincent Martinet
    Abstract: Evaluating the sustainability of a society requires a system of shadow or accounting values derived from the sustainability objective. As a first step toward the derivation of such shadow values for a maximin objective, this paper studies an economy composed of two reproducible assets, each producing one of two consumption goods. The effect of the substitutability between goods in utility is studied by postulating, in turn, neoclassical diminishing marginal substitutability, perfect substitutability and perfect complementarity. The degree of substitutability has strong effects on the maximin solution, affecting the regularity or non-regularity of the program, and on the accounting values. This has important consequences for the computation of genuine savings and the sustainability prospects of future generations.
    Keywords: sustainable development; maximin; sustainability accounting; substitutability.
    JEL: O44 Q56
    Date: 2016
  2. By: Luca Zan; Kent Deng
    Abstract: Prevailing approaches in historical studies adopt a macro view and place an overwhelming emphasis on the Industrial Revolution as a major discontinuity in Western development. On the contrary, recent research in accounting, management and business history has suggested a different direction. When opting for a micro-level focus, crucial discontinuities in management and accounting in the West can be traced back to the Renaissance Period. The paper thus searches for ‘micro foundations’ in managing and accounting practices to address the on-going debate on the East-West divergence. Despite the obvious problems with source availability, we outline a new research agenda for the debate.
    Keywords: Great Divergence Debate; Venice Arsenal; accounting and capitalism; proto-industrial settings; premodern bureaucracies
    JEL: N0
    Date: 2017–01
  3. By: Raphael Boleslavsky (University of Miami); Bruce Carlin (UCLA); Christopher Cotton (Queen's University)
    Abstract: When self-interested agents compete for scarce resources, they often exaggerate the promise of their activities. As such, principals must consider both the quality of each opportunity and each agent’s credibility. We show that principals are better off with less transparency because they gain access to better investments. This is due to a complementarity between the agents' effort provision and their ability to exaggerate. As such, it is suboptimal for principals to prevent misreporting, even if doing so is costless. This helps explain why exaggeration is ubiquitous during allocation decisions: money management, analyst coverage, private equity fundraising, and venture capital investments.
    Keywords: Auditing, Monitoring, Financial Reporting, Capital Budgeting, Exaggeration
    JEL: G14 G31 D83
    Date: 2017–01
  4. By: René Fahr (Paderborn University); Anica Rose (Paderborn University)
    Abstract: Annual reports are companies’ business cards to present and explain important corporate performance outcomes, both internally and externally. On the basis of the well-explored self-serving attribution bias in publicly available but unaudited documents, the question remains whether the tendency to take personal credit for positive outcomes (acclaiming attributions) but to assign blame for negative outcomes to external circumstances (defensive attributions) also holds for legally regulated management reports. Beyond that, it remains to be clarified whether acclaiming and defensive attribution patterns are determined either by surrounding conditions (i.e. cognitive information-processing explanation) or by impression management strategies (i.e. motivational explanation). A unique panel dataset of Germany’s largest blue-chip corporations provides evidence of the existence of self-serving attribution patterns in the explanations provided for cause-consequence relations in corporate management reports. With regard to acclaiming attributions, our findings support motivational intentions. With regard to the defensive attributions, however, the cognitive information-processing explanation dominates.
    Keywords: annual reports, management reports, content analysis, self-serving attributions
    JEL: L29
    Date: 2017–01

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