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on Accounting and Auditing |
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Issue of 2017‒12‒03
sixteen papers chosen by |
| By: | Bayer, Ralph; Cowell, Frank A. |
| Abstract: | Firms are usually better informed than tax authorities about market conditions and the potential profits of competitors. They may try to exploit this situation by under-reporting their own taxable profits. The tax authority could offset firms’ informational advantage by adopting “smarter” audit policies that take into account the relationship between a firm׳s reported profits and reports for the industry as a whole. Such an audit policy will create an externality for the decision makers in the industry and this externality can be expected to affect not only firms׳ reporting policies but also their market decisions. If public policy takes into account wider economic issues than just revenue raising what is the appropriate way for a tax authority to run such an audit policy? We develop some clear policy rules in a standard model of an industry and show the effect of these rules using simulations. |
| Keywords: | Tax compliance; evasion; oligopoly |
| JEL: | J1 |
| Date: | 2016–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:65996&r=acc |
| By: | Baumöhl, Eduard; Iwasaki, Ichiro; Kočenda, Evžen |
| Abstract: | We analyze firm survival determinants in four new European Union member states (Czech Republic, Hungary, Poland, and Slovakia). We employ the Cox proportional hazards model on firm-level data over the period of 2006–2015. We show that less concentrated control of large shareholders, higher solvency, and more board directors are linked with increased probability of firm survival in all four countries. However, an excessive number of board directors shows a detrimental effect. Firms with foreign owners and higher returns on their assets exhibit better survival chances. On the other hand, larger firms and those hiring international auditors show lower probabilities of survival. A number of determinants specifically influence firm survival in different ways across countries. This fact emphasizes that differences in business conditions are important when studying firm survival. |
| Keywords: | firm survival, new EU member states, survival and exit determinants, hazards model, panel data |
| JEL: | D22 G01 G33 G34 P34 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2017-5&r=acc |
| By: | Maria Paula Gerardino; Stephan Litschig; Dina Pomeranz |
| Abstract: | Audits are generally intended to monitor compliance with existing rules. However, audits can also create unintended impacts and incentives through the specific protocol by which they are executed. In particular, audits can discourage the use of complex administrative procedures with more rules for auditors to check. This paper investigates the effects of procurement audits on public entities' choice of purchase procedures in Chile. While the national procurement legislation tries to promote the use of more transparent and competitive auctions rather than discretionary direct contracts for selection of suppliers, auctions are significantly more complex and the audit protocol mechanically leads to more scrutiny and a higher probability of further investigation for auctions than for direct contracts. Using a regression discontinuity design based on a scoring rule of the National Comptroller Agency, we find that audits lead to a decrease in the use of auctions and a corresponding increase in the use of direct contracts. In order to further test the underlying mechanism, we develop a new approach to conduct subgroup analysis in regression discontinuity designs while holding other observables constant. |
| JEL: | D73 H57 O38 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23978&r=acc |
| By: | Diewert, W. Erwin; Fox, Kevin J. |
| Abstract: | There are many decompositions of productivity growth for a production unit that rely on the ratio approach to index number theory. However, the business and accounting literatures tend to favour using differences rather than ratios. In this paper, three analogous decompositions for productivity growth in a difference approach to index number theory are obtained. The first approach uses the production unit’s value added function in order to obtain a suitable decomposition. It relies on various first order approximations to this function, but the decomposition can be given an axiomatic interpretation. The second approach uses the cost constrained value added function and assumes that the reference technology for the production unit can be approximated by the free disposal conical hull of past observations of inputs used and outputs produced by the unit. The final approach uses a particular flexible functional form for the producer’s value added function and provides an exact decomposition of normalized value added. |
| Keywords: | Productivity measurement, index numbers, indicator functions, the Bennet indicator |
| JEL: | C43 D24 D33 E23 E31 O47 |
| Date: | 2017–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:pmicro:erwin_diewert-2017-10&r=acc |
| By: | Chen, Hui; Jorgensen, Bjorn |
| Abstract: | We analyze the effect of accounting bias on the competition and market structure of an industry. In our model, firms interim accounting reports on investment projects may contain bias introduced by the mandatory accounting system. We find that this bias strictly decreases firm's profits when investors do not have an abandonment option, but different results emerge when we allow the investors to divest in the interim. Specifically, a conservative accounting regime may increase the likelihood of projects being discontinued, inducing some firms to exit from the product market and leaving rivals to capture their market share. A conservative regime can thus soften market competition and result in ex ante higher investment payoff, higher consumer surplus, and higher total social welfare. Since industries often have common reporting standards, we also identify the degrees of industry-wide accounting bias that maximize the expected investor payoffs. Finally, we allow for investors to coordinate their divestment decisions when both firms report unfavorable costs and show an improvement to both firms profits and consumer surplus. |
| JEL: | M40 |
| Date: | 2016–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:64217&r=acc |
| By: | Alexander Culiuc; Annette Kyobe |
| Abstract: | Empirical research on structural reforms has focused primarily on their impact on growth and productivity. Yet an often-invoked rationale for structural reforms is their impact on external adjustment. This paper finds little evidence that structural reforms improve the current account in the short run, but they can increase the responsiveness and resilience of the economy to external shocks. In particular, elasticities of exports with respect to the real effective exchange rate increase with some structural indicators, suggesting that structural reforms facilitate the reallocation of resources to the tradable sector in response to a negative external shock. The paper concludes that structural reforms, while not having an immediate positive impact on the current account balance, can be an important complement to traditional macroeconomic adjustment. |
| Keywords: | Current account;Exports;structural reforms, REER, real exchange rate, Country and Industry Studies of Trade, Trade and Labor Market Interactions, Open Economy Macroeconomics, Public Policy |
| Date: | 2017–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:17/182&r=acc |
| By: | Budzinski, Oliver |
| Abstract: | Financial regulation in sports is usually discussed in the context of representing an instrument against "financial doping". Notwithstanding the merits of this discussion, this paper takes the opposite perspective and analyses how market-internal financial regulation itself may anticompetitively influence sporting results. Virtually every regulative financial intervention distorts sporting competition to some extent and creates beneficiaries and losers. Sometimes, the actual winners and losers of financial regulation stand in line with the (legitimate) goals of the regulation like limiting financial imbalances or preventing distortive midseason insolvencies of teams. However, financial regulation may also display unintended side-effects like protecting hitherto successful teams from new challengers, cementing the competitive order, creating foreclosure and entry barriers, or serving vested interests of powerful parties. All of these effects may also be hidden agendas by those who are implementing and enforcing market-internal financial regulation or influencing it. This paper analyses various types of budget caps (including salary caps) with respect to potentially anticompetitive effects. UEFA's so-called Financial Fair Play Regulations are highlighted as an example. Furthermore, the paper discusses allocation schemes of common revenues (like from the collective sale of broadcasting rights) as another area of financial regulation with potentially anticompetitive effects. Eventually, the effects of standards for accounting, financial management, and auditing are discussed. |
| Keywords: | sports economics,financial regulation,budget caps,salary caps,financial fair play,financial doping,collective sale of media rights,sports broadcasting rights,revenue sharing |
| JEL: | L40 L83 K21 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuiedp:110&r=acc |
| By: | Potter, Simon M. (Federal Reserve Bank of New York) |
| Abstract: | Remarks to the National Association of Securities Professionals, New York City. |
| Keywords: | primary dealers; counterparty pilot programs; balance sheet; taper tantrum; asset purchase programs; transparency; Normalization Principles and Plans; caps; gradualism; predictability |
| Date: | 2017–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:262&r=acc |
| By: | Alexander Guschanski; Engelbert Stockhammer |
| Abstract: | This paper analyses the emergence of current account imbalances as a result of the co-existence of trade flows and financial flows. The literature has tended to view these factors in isolation: many post-Kaleckian models, as well as Net-saving approaches assume that financial flows will adjust to trade flows. Models focusing on financial crises feature a strong role for financial flows but ignore drivers of trade flows. Similarly, empirical analyses either ignore drivers of financial flows or insufficiently capture determinants of trade flows. The paper, first, proposes a simple macroeconomic framework of the current account which gives equal emphasis to trade flows, determined by price competitiveness, and financial flows, determined by asset prices. Second, we test a reduced form of the model for 28 OECD countries for the period 1971-2014. Our results indicate that cost competitiveness as well as asset prices play a role in the determination of current accounts, but asset prices have dominated in the last two decades. |
| Keywords: | current account, financial flows, competitiveness, asset prices |
| JEL: | E12 F32 F41 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp1716&r=acc |
| By: | Anson, Mike; Bhola, David; Kang, Miao; Thomas, Ryland |
| Abstract: | We use daily transactional ledger data from the Bank of England's Archive to test whether and to what extent the Bank of England during the mid-nineteenth century adhered to Walter Bagehot's rule that a central bank in a financial crisis should lend cash freely at a high interest rate in exchange for "good" securities. The archival data we use provides granular, loan-level insight on the price and quantity of credit, and information on its distribution to particular counterparties. We find that the Bank's behaviour during this period broadly conforms to Bagehot's rule, though with variation across the crises of 1847, 1857 and 1866. Using a new, higher frequency series on the Bank's balance sheet, we find that the Bank did lend freely, with the number of discounts and advances increasing during crises. These loans were typically granted at a rate above pre-crisis levels and, in 1857 and 1866, typically at a spread above Bank Rate, though we also find some instances in the daily discount ledgers where individual loans were made below Bank rate in 1847. Another set of customer ledgers shows that the securities the Bank purchased were debts owed by a geographically and industrially diverse set of debtors. And using new data on the Bank's income and dividends, we find the Bank and its shareholders profited from lender of last resort operations. We conclude our paper by relating our findings to contemporary debates including those regarding the provision of emergency liquidity to shadow banks. |
| Keywords: | Bank of England,lender of last resort,financial crises,financial history,central banking |
| JEL: | E58 G01 G18 G20 H12 N2 N4 N8 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eabhps:1703&r=acc |
| By: | Sheheryar Malik; TengTeng Xu |
| Abstract: | Interconnectedness among global systemically important banks (GSIBs) and global systemically important insurers (GSIIs) has important financial stability implications. This paper examines connectedness among United States, European and Asian GSIBs and GSIIs, using publicly-available daily equity returns and intra-day volatility data from October 2007 to August 2016. Results reveal strong regional clusters of return and volatility connectedness amongst GSIBs and GSIIs. Compared to Asia, selected GSIBs and GSIIs headquartered in the United States and Europe appear to be main sources of market-based connectedness. Total system connectedness—i.e., among all GSIBs and GSIIs—tends to rise during financial stress, which is corroborated by a balance sheet oriented systemic risk measure. Lastly, the paper demonstrates significant influence of economic policy uncertainty and U.S. long-term interest rates on total connectedness among systemically important institutions, and the important role of bank profitability and asset quality in driving bank-specific return connectedness. |
| Keywords: | Equity prices;JEL Classification Numbers: G21, G22 and C32 Keywords: Global systemically important banks and insurers, connectedness, volatility, vector autoregression, Global systemically important banks and insurers, Time-Series Models, JEL Classification Numbers: G21 G22 and C32, Keywords: Global systemically important banks and insurers |
| Date: | 2017–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:17/210&r=acc |
| By: | Sonali Das |
| Abstract: | This paper analyzes how the leverage of financial institutions affects their demand for assets and the resulting value of transactions between financial institutions. The results show a positive relationship between buyer capital and the likelihood of buying assets, and between buyer capital and the value of the deal. That is, those institutions that are the least constrained in their ability to raise funding are those that demand assets and pay more for them. This result does not hold, however, for deposit-taking institutions that had access to several government programs designed to improve their liquidity position during the crisis of 2008. |
| Keywords: | Financial crises;Asset sales; financial intermediaries; balance sheets; leverage, Asset sales, financial intermediaries, balance sheets, leverage, Government Policy and Regulation |
| Date: | 2017–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:17/200&r=acc |
| By: | Stijn Claessens; M. Ayhan Kose |
| Abstract: | This paper surveys the theoretical and empirical literature on the macroeconomic implications of financial imperfections. It focuses on two major channels through which financial imperfections can affect macroeconomic outcomes. The first channel, which operates through the demand side of finance and is captured by financial accelerator-type mechanisms, describes how changes in borrowers’ balance sheets can affect their access to finance and thereby amplify and propagate economic and financial shocks. The second channel, which is associated with the supply side of finance, emphasises the implications of changes in financial intermediaries’ balance sheets for the supply of credit, liquidity and asset prices, and, consequently, for macroeconomic outcomes. These channels have been shown to be important in explaining the linkages between the real economy and the financial sector. That said, many questions remain. |
| Keywords: | Asset prices, balance sheets, credit, financial accelerator, financial intermediation, financial linkages, international linkages, leverage, liquidity, macro-financial linkages, output, real-financial linkages. |
| JEL: | D53 E21 E32 E44 E51 F36 F44 G01 G10 G12 G14 G15 G21 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2017-75&r=acc |
| By: | Iwasaki, Ichiro |
| Abstract: | Using a unique firm-level dataset obtained from a large-scale questionnaire survey conducted in late 2015, we examined the generality and heterogeneity of corporate governance systems between the eastern and western regions of Russia. The survey results strongly suggest that various characteristics of corporate governance systems observed in industrial firms and listed companies are, in fact, common and long-term trends that are seen across all Russian business sectors. At the same time, however, we also found pronounced regional heterogeneity between the eastern and western regions, with companies in the east being more reluctant than those in the west to introduce a governance system to monitor and supervise top management. Regression analysis shows that this finding is robust, even after a series of firm-level attributes are simultaneously controlled for. |
| Keywords: | corporate governance system, legal form of incorporation, board of directors, audit system, regional heterogeneity, Russia |
| JEL: | D22 G34 L22 M42 P25 P31 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:hit:rrcwps:72&r=acc |
| By: | Grégory Claeys; Maria Demertzis |
| Abstract: | This policy contribution was prepared for the Committee on Economic and Monetary Affairs of the European Parliament (ECON) as an input for the Monetary Dialogue of 20 November 2017 between ECON and the President of the ECB. Copyright remains with the European Parliament at all times As the global financial crisis unfolded, the European Central Bank (ECB) and other central banks greatly extended their monetary policy toolboxes and adjusted their operational frameworks. These unconventional monetary policies have left central banks with large balance sheets. As growth picks up in the euro area, there are discussions about how to normalise monetary policy, but it is unclear if normalisation means returning to monetary policy as it was prior to the crisis, or whether there is a ‘new normal’ that would justify different monetary policies. The debate on the optimal size of the central bank’s balance sheet has not yet been settled. We discuss the benefits and drawbacks of central banks having permanently large balance sheets. It might be difficult to reduce them quickly without negatively affecting financial markets. In order to avoid market volatility, this process needs to be done gradually and preferably passively, by holding to maturity assets purchased during the crisis. The interest rate – the central banks’ main conventional tool – might stay at a much lower level than historical standards and closer to the zero-lower bound because of a fall in the neutral rate, implying that in the future monetary policy would have to rely more on balance sheet policies and less on interest rate cuts to provide accommodation during recessions. The combination of these two issues implies that the normalisation of monetary policy will be very slow and entail a long period with a large balance sheet. In the meantime, the ECB will not be able to go back to its pre-crisis operational framework. In terms of the sequencing of the normalisation process, the experience of the US Federal Reserve, which was one of the first central banks to use unconventional tools during the crisis, could provide useful pointers to the ECB. Following the Fed’s example would involve tapering (ie gradually reducing asset purchases), then increasing key policy rates slowly before reducing passively the size of the balance sheet. The Fed’s experience shows that the normalisation process needs to be communicated early in order to reduce uncertainty for market participants and avoid any disruption of financial markets. So far, the ECB has been quite successful in smoothly scaling back its asset purchases, but it has not yet provided a clear vision of what its monetary policy or operational framework will look like at the end of the normalisation process. |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:22931&r=acc |
| By: | Garriga, Carlos (Federal Reserve Bank of St. Louis); Hedlund, Aaron (University of Missouri,) |
| Abstract: | Using a model with housing search, endogenous credit constraints, and mortgage default, this paper accounts for the housing crash from 2006 to 2011 and its implications for aggregate and cross-sectional consumption during the Great Recession. Left tail shocks to labor market uncertainty and tighter down payment requirements emerge as the key drivers. An endogenous decline in housing liquidity amplifies the recession by increasing foreclosures, contracting credit, and depressing consumption. Balance sheets act as a transmission mechanism from housing to consumption that depends on gross portfolio positions and the leverage distribution. Low interest rate policies accelerate the recovery in housing and consumption. |
| Keywords: | Housing; Consumption; Liquidity; Debt; Great Recession |
| JEL: | D31 D83 E21 E22 G11 G12 G21 |
| Date: | 2017–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-030&r=acc |