nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2021‒02‒15
seven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Who does and doesn’t pay taxes? By Advani, Arun
  2. Profit Taxation and Bank Risk Taking By Michael Kogler
  3. La présentation des politiques « diversité et inclusion » des entreprises à travers leurs déclarations de performance extra-financière (DPEF) By Jean-Marie Peretti
  4. Liquidity, Interbank Network Topology and Bank Capital By Aref Mahdavi Ardekani
  5. From Basel I to Basel III: Sequencing Implementation in Developing Economies By Caio Ferreira; Nigel Jenkinson; Christopher Wilson
  6. Can Destination-Based Cash Flow Taxes Arise in Equilibrium? By Thomas A. Gresik; Eric Bond
  7. Fair-value Analytical Valuation of Reset Executive Stock Options Consistent with IFRS9 Requirements By Otto Konstandatos

  1. By: Advani, Arun (University of Warwick, CAGE, and IFS)
    Abstract: We use administrative tax data from audits of self-assessment tax returns to understand what types individuals are most likely to be non-compliant. Non-compliance is common, with one-third of taxpayers underpaying by some amount, although half of aggregate under-reporting is done by just 2% of taxpayers. Third party reporting reduces non-compliance, while working in a cash-prevalent industry increases it. However, compliance also varies significantly with individual characteristics: non-compliance is higher for men and younger people. These results matter for measuring inequality, for understanding taxpayer behaviour, and for targeting audit resources.
    Keywords: JEL Classification:
    Date: 2020
  2. By: Michael Kogler
    Abstract: How can tax policy improve financial stability? Recent studies suggest large stability gains from eliminating the debt bias in corporate taxation. It is well known that this reform reduces bank leverage. This paper analyzes a novel, complementary channel: risk taking. We model banks’ portfolio choice under moral hazard and emphasize the ‘incentive function’ of equity. We find that (i) an allowance for corporate equity (ACE) and a lower tax rate discourage risk taking and offer stability and welfare gains, (ii) a revenue-neutral ACE unambiguously improves financial stability, and (iii) capital regulation and deposit insurance influence the risk-taking effects of taxation.
    Keywords: corporate taxation, tax reform, banking, risk taking, financial stability
    JEL: G21 G28 H25
    Date: 2021
  3. By: Jean-Marie Peretti (ESSEC Business School - Essec Business School)
    Abstract: The wealth of information published by companies on their diversity and inclusion policies, practices and results has grown in recent years. This article studies the way in which companies explain their diversity and inclusion policy, the actions implemented and the results obtained from the analysis of the information presented by eighteen large companies (Atos, Arkema, Auchan, BPCE , Casino, Danone, Hermès, La Poste, Legrand, L'Oréal, LVMH, Michelin, PSA, Société Générale, Sopra-Steria, Sodexo, Total, Vinci) in their 2018 DPEF (Extra Financial Performance Declaration) published in 2019. This study highlights the main developments in the disclosure of social information compared to previous practices since the publication of the first compulsory social reports in 1979. The field of diversity management is widening to new sources. The policies and practices are presented in more detail with quantified objectives and measured results. The processes for the evaluation, certification and audit of information by independent third parties are specified.
    Abstract: La richesse des informations publiées par les entreprises sur leurs politiques, pratiques et résultats en matière de diversité et d'inclusion a progressé ces dernières années. Cet article étudie la manière dont les entreprises explicitent leur politique de diversité et d'inclusion, les actions mises en œuvre et les résultats obtenus à partir de l'analyse des informations présentées par dix-huit grandes entreprises (Atos, Arkema, Auchan, BPCE, Casino, Danone, Hermès, La Poste, Legrand, L'Oréal, LVMH, Michelin, PSA, Société Générale, Sopra-Steria, Sodexo, Total, Vinci) dans leur DPEF (Déclaration de Performance Extra Financière) 2018 publiée en 2019. Cette étude fait ressortir les principales évolutions en matière de divulgation d'informations sociales par rapport aux pratiques antérieures depuis la publication des premiers bilans sociaux obligatoires en 1979. Le champ du management de la diversité s'élargit à de nouvelles sources. Les politiques et les pratiques sont présentés de façon plus détaillée avec des objectifs chiffrés et des résultats mesurés. Les processus d'évaluation, de certification et d'audit des informations par des tiers indépendants sont précisés.
    Date: 2020–12–01
  4. By: Aref Mahdavi Ardekani (Centre d'Economie de la Sorbonne)
    Abstract: By applying the interbank network simulation, this paper examines whether the causal relationship between capital and liquidity is influenced by bank positions in the interbank network. While existing literature highlights the causal relationship that moves from liquidity to capital, the question of how interbank network characteristics affect this relationship remains unclear. Using a sample of commercial banks from 28 European countries, this paper suggests that bank's interconnectedness within interbank loan and deposit networks affects their decisions to set higher or lower regulatory capital ratios when facing higher iliquidity. This study provides support for the need to implement minimum liquidity ratios to complement capital ratios, as stressed by the Basel Committee on Banking Regulation and Supervision. This paper also highlights the need for regulatory authorities to consider the network characteristics of banks
    Keywords: Interbank network topology; Bank regulatory capital; Liquidity risk; Basel III
    JEL: G21 G28 L14
    Date: 2020–10
  5. By: Caio Ferreira; Nigel Jenkinson; Christopher Wilson
    Abstract: Developing economies can strengthen their financial systems by implementing the main elements of global regulatory reform. But to build an effective prudential framework, they may need to adapt international standards taking into account the sophistication and size of their financial institutions, the relevance of different financial operations in their market, the granularity of information available and the capacity of their supervisors. Under a proportionate application of the Basel standards, smaller institutions with less complex business models would be subject to a simpler regulatory framework that enhances the resilience of the financial sector without generating disproportionate compliance costs. This paper provides guidance on how non-Basel Committee member countries could incorporate banks’ capital and liquidity standards into their framework. It builds on the experience gained by the authors in the course of their work in providing technical assistance on—and assessing compliance with—international standards in banking supervision.
    Keywords: Banking;Liquidity risk;Liquidity requirements;Basel III;Basel Core Principles;WP,bank,capital,market,risk,developing economy
    Date: 2019–06–14
  6. By: Thomas A. Gresik; Eric Bond
    Abstract: We examine the effects of unilateral changes in a country’s tax parameters in a two country model when both countries are part of a destination-based cash flow taxation (DBCFT) system. We con-sider deviations from a globally efficient DBCFT equilibrium by allowing each country to vary its corporate tax rate, degree of taxation of capital income, and level of border adjustment. We decompose the effect of policy changes into fiscal effects and price effects, and show that regardless of the similarity between the two countries, at least one country has an incentive to move toward taxation of capital income. If countries are identical, each has an incentive to move toward source-based taxation. In contrast, changes in corporate tax rates have neither fiscal or price effects, and thus can be set unilaterally. Our results show that an international agreement to establish multilateral DBCFT requires a commitment mechanism to prevent deviations from cash flow taxation and full border adjustments.
    Keywords: destination-based taxes, source-based taxes, cash-flow taxes
    JEL: H73 H21 F23
    Date: 2021
  7. By: Otto Konstandatos (Finance Discipline Group, UTS Business School, University of Technology Sydney)
    Abstract: Executive stock options (ESOs) are widely used to reward employees and represent major items of corporate liability. The International Accounting Standards Board IFRS9 financial reporting standard which came into full effect on 1-Jan 2018, along with its Australian implementation AASB9, requires public corporations to report their fair-value cost in financial statements. Reset ESOs are typically issued to re-incentivise employees by allowing the option to be cancelled and re-issued with a lower exercise price or later maturity. We produce a novel analytical reset ESO valuation consistent with the IFRS9 financial reporting standard incorporating the simultaneous resetting of vesting period, exercise window, reset level and maturity. We allow for voluntary and involuntary exercise. Our analytical result is expressed solely in terms of standardised European binary power option instruments. Using the multi-state mortality model of Hariyanto (2014) we estimate longitudinal disability and death transition probabilities from cross-sectional data. We determine survival functions for pre-vesting forfeiture or post-vesting involuntary exercise for use with weighted portfolios of our formulae to illustrate the effect of survival on the fair-value. We examine the IFRS9 method of valuation using expected time to option exercise and demonstrate a consistent over-estimation of fair-value of up to 27% for senior executives.
    Keywords: Executive compensation; Exotic options; Resetting; Non-life insurance liabilities; IFRS9
    JEL: M40 G30 G32 J33
    Date: 2020–12–01

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