nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2019‒04‒08
six papers chosen by

  1. Testing the Effectiveness of Consumer Financial Disclosure: Experimental Evidence from Savings Accounts By Paul D. Adams; Stefan Hunt; Christopher Palmer; Redis Zaliauskas
  2. Family control, pyramidal ownership and investment-cash flow sensitivity: evidence from an emerging economy By Aquiles Kalatzis; Aline Pellicani, Dante Mendes Aldrighi
  3. Capital Income Taxation and Aggregate Instability By Kevin x.d. Huang; Qinglai Meng; Jianpo Xue
  4. Does banks’ systemic importance affect their capital structure and balance sheet adjustment processes? By Yassine Bakkar; Olivier De Jonghe; Amine Tarazi
  5. Foreign exchange reserves as a tool for capital account management By J. Scott Davis; Ippei Fujiwara; Kevin X.D. Huang; Jiao Wang
  6. Transaction-tax evasion in the housing market By José Garcia Montalvo; Amedeo Piolatto; Josep M. Raya

  1. By: Paul D. Adams; Stefan Hunt; Christopher Palmer; Redis Zaliauskas
    Abstract: Disclosure—the practice of providing information to support decision making—has been widely mandated in public policy but is routinely ignored by consumers and subject to obfuscation by firms. Yet most evidence on the effectiveness of consumer financial disclosure stems from lab experiments where subjects do not have competing demands on their attention or from analysis of borrowing decisions where optimality is hard to characterize. In this paper, we provide field evidence from randomized-controlled trials with 124,000 savings account holders at five UK depositories. Treated consumers received varying degrees of salient information about alternative products, including one with their current provider that strictly dominated their current savings product. Motivated by work on search frictions, switching costs, and inattention, our experimental variation is designed to allow us to examine the importance of each in inhibiting effective disclosure. Despite the switching process taking 15 minutes on average and the moderate size of average potential gains (£123 in the first year), attention to disclosure is low, significantly limiting its potential effectiveness, motivating explicit disclosure-design rules, and demonstrating the nature of deposit stickiness.
    JEL: D14 D83 E21 G28 M38
    Date: 2019–03
  2. By: Aquiles Kalatzis; Aline Pellicani, Dante Mendes Aldrighi
    Abstract: We investigate the effect of pyramidal ownership and family control in investment-cash flow sensitivity of Brazilian firms using financial constraint indexes to a priori classify firms. For constrained firms, we find that family control does not directly influence the investment-cash flow sensitivity, while for unconstrained firms, Family control shows a negative effect in investment decisions. However, the active involvement of the controlling family in the board increases investment-cash flow of unconstrained firms, possibly aggravating agency problems. Regarding the pyramidal ownership, we provide evidences consistent with the idea of internal transfer of funds among firms belonged to the arrangement structure.
    Keywords: pyramid; family control; investment-cash flow sensitivity; financial constraint.
    JEL: G30 G32
    Date: 2019–04–01
  3. By: Kevin x.d. Huang (Vanderbilt University); Qinglai Meng (Oregon State University); Jianpo Xue (Renmin University of China)
    Abstract: This paper overturns the conventional wisdom that reliance on capital tax rate adjustment to ensure fiscal sustainability is immune to extrinsic uncertainty. The interaction of capital taxation and endogenous capital utilization generates fiscal increasing returns and factor share redistribution to induce sunspots expectations. Capital depreciation allowance debilitates this mechanism to preempt policy induced instability while achieving budget objective. Self-fulfilling fluctuations can occur in real-world economies, unless their depreciation allowances are sufficiently higher or income tax rates lower than the current levels. This adds a short-run motivation to the long-run approach to capital taxation and the supply-side view of fiscal policy reforms.
    Keywords: Capital income taxation, Depreciation allowance, Endogenous utilization, Fiscal increasing returns, Self-fulfilling prophecies
    JEL: E6 E3
    Date: 2019–03–27
  4. By: Yassine Bakkar (Université de Limoges, LAPE); Olivier De Jonghe (Economics and Research Department, NBB and European Banking Center, Tilburg University); Amine Tarazi (Université de Limoges, LAPE and Institut Universitaire de France (IUF))
    Abstract: Frictions prevent banks to immediately adjust their capital ratio towards their desired and/or imposed level. This paper analyzes (i) whether or not these frictions are larger for regulatory capital ratios vis-à-vis a plain leverage ratio; (ii) which adjustment channels banks use to adjust their capital ratio; and (iii) how the speed of adjustment and adjustment channels differ between large, systemic and complex banks versus small banks. Our results, obtained using a sample of listed banks across OECD countries for the 2001-2012 period, bear critical policy implications for the implementation of new (systemic risk-based) capital requirements and their impact on banks’ balance sheets, specifically lending, and hence the real economy.
    Keywords: , capital structure, speed of adjustment, systemic risk, systemic size, bank regulation, lending, balance sheet composition
    JEL: G20 G21 G28
    Date: 2019–03
  5. By: J. Scott Davis (Federal Reserve Bank of Dallas); Ippei Fujiwara (Keio University and Australian National University); Kevin X.D. Huang (Vanderbilt University); Jiao Wang (University of Melbourne)
    Abstract: Many recent theoretical papers have argued that countries can insulate themselves from volatile world capital flows by using a variable tax on foreign capital as an instrument of monetary policy. But at the same time many empirical papers have argued that only rarely do we observe these cyclical capital taxes used in practice. In this paper we present a small open economy framework where the central bank can engage in sterilized foreign exchange intervention. When private agents can freely buy and sell foreign bonds, sterilized foreign exchange intervention has no effect. But we analytically prove that when private agents cannot freely buy and sell foreign bonds, that is, under acyclical capital controls, optimal sterilized foreign exchange intervention is equivalent to an optimally chosen tax on foreign capital. Numerical simulations of the model show that a variable capital tax is a reasonable approximation for sterilized foreign exchange intervention under the levels of capital controls observed in many emerging markets.
    Keywords: Central bank, Small open economy, foreign exchange reserves, capital controls
    JEL: E5 F4
    Date: 2019–03–25
  6. By: José Garcia Montalvo; Amedeo Piolatto; Josep M. Raya
    Abstract: We model the behaviour of a buyer trying to evade the real estate transfer tax. We identify over-appraisal as a key, easily-observable element that is inversely related with tax evasion. We conclude that the tax authority could focus auditing e orts on low-appraisal transactions. We include `behavioural'components (shame and stigma) allowing to introduce buyers'(education) and societal (social capital) characteristics that explain individual and idiosyncratic variations.Our empirical analysis con rms the predictions using a unique database, where we directly observe: real payment, value declared to the authority,appraisal, buyers' educational level and local levels of corruption and trust.
    Keywords: transfer tax, tax evasion, second-hand housing market, overappraisal, Loan-To-Value, corruption, social capital, stigma, shame, education
    JEL: G21 H26 R21
    Date: 2019–03

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