nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2021‒05‒24
ten papers chosen by

  1. Profit-splitting Rules and the Taxation of Multinational Digital Platforms By Bloch, Francis; Demange, Gabrielle
  2. Forward looking loan provisions: Credit supply and risk-taking By Morais, Bernardo; Ormazabal, Gaizka; Peydró, José Luis; Roa, Monica; Sarmiento, Miguel
  3. How Expected Inflation Distorts the Current Account and the Valuation Effect By Herkenhoff, Philipp; Sauré, Philip
  4. The transmission of monetary policy via the banks’ balance sheet - does bank size matter? By Tumisang Loate; Nicola Viegi
  5. The Impact of Financial Education of Managers on Medium and Large Enterprises - A Randomized Controlled Trial in Mozambique By Custódio, Cláudia; Mendes, Diogo; Metzger, Daniel
  6. What's In A Name? Reputation and Monitoring in the Audit Market By Somdutta Basu; Suraj Shekhar
  8. How Buoyant Is the South African Tax System? An ARDL Approach By Baneng Naape; Nyasha Mahonye
  9. Taxing Our Wealth By Scheuer, Florian; Slemrod, Joel
  10. Arrovian Efficiency and Auditability in the Allocation of Discrete Resources By Pycia, Marek; Ünver, M. Utku

  1. By: Bloch, Francis; Demange, Gabrielle
    Abstract: This paper analyzes the strategy of a monopolistic digital platform serving users from two jurisdictions with different corporate tax rates. We consider two profit-splitting rules, Separate Accounting (SA) and Formula Apportionment (FA) based on the number of users in the two jurisdictions. We show that, even in the absence of transfer pricing, the platform shifts profit from the high-tax to the low-tax jurisdiction exploiting network externalities under SA and manipulating the apportionment key under FA. In order to shift profit, the platform distorts prices and quantities. Under SA, the direction of the distortions depends on the sign of the externalities. We use a numerical simulation to show that the ranking of fiscal revenues under the two r\'{e}gimes differ in the two jurisdictions: the high-tax jurisdiction prefers SA to FA whereas the low-tax jurisdiction prefers FA to SA.
    Keywords: corporate income taxation; Digital Platforms; Formula Apportionment; multinational firms; Separate accountin
    JEL: H25 H32 L12 L14
    Date: 2020–10
  2. By: Morais, Bernardo; Ormazabal, Gaizka; Peydró, José Luis; Roa, Monica; Sarmiento, Miguel
    Abstract: We show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected-rather than incurred-credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms- SMEs with shorter credit history, less tangible assets or more defaulted loans-but engage in "search-for-yield" within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification.
    Keywords: bank risk-taking; corporate real and credit supply effects of accounting; ECL; IFRS9; loan provisions
    JEL: E31 G18 G21 G28
    Date: 2020–09
  3. By: Herkenhoff, Philipp; Sauré, Philip
    Abstract: We show that the current account balance (CA) is systematically distorted by an inflation effect, which arises because income on foreign-issued debt is recorded as nominal interest in the currency of denomination. Since nominal interest includes compensations for expected inflation, increases in the latter must impact the CA. Guided by the relevant international accounting rules, we impute the inflation effect for 50 economies between 1991 and 2017. When adjusting for the inflation effect, the absolute value of yearly CAs drops by 0.13% of GDP on average. Over the full period, the reduction is sizable 22.85% of initial GDP for the average country (26.4% for the U.S.). As the flip-side of the CA distortions, the inflation effect contributes systematically to the well-known valuation effect of net foreign assets, of which about a twelfth is accounted for between 1991 and 2017 for the average country and well over half for the U.S.
    Keywords: current account; inflation; Valuation effects
    JEL: F30 F32
    Date: 2020–11
  4. By: Tumisang Loate; Nicola Viegi
    Abstract: We study the credit channel of monetary policy in South Africa between 2002 and 2019 using banks’ balance sheets. We show that there is a signiï¬ cant heterogeneity within the banking sector in both the loan and deposit sides of the banks’ balance sheets. In response to a contractionary monetary policy shock, big banks adjust their loan portfolio by lending to businesses and reducing lending to households whereas for small banks we ï¬ nd the opposite. The increase in corporate lending amid declining inventories is consistent with the hypothesis of “hedging and safeguarding the capital adequacy ratio†rather than funding business inventories. This paper highlights the importance of heterogeneity in customers, market power and business models in the banking sector, which characterises the socio-demographics dynamics in South Africa.
    Keywords: Credit channel, banks balance sheets, unconventional monetary policy
    JEL: E32 E52 G21
    Date: 2021–01
  5. By: Custódio, Cláudia; Mendes, Diogo; Metzger, Daniel
    Abstract: This paper studies the impact of a course in "Finance" for top managers of medium and large enterprises in Mozambique through a randomized controlled trial (RCT). Survey data and accounting data provide consistent evidence that managers change firm financial policies in response to finance education. The largest treatment ef- fect is on short-term financial policies related to working capital. Reductions in accounts receivable and inventories generate an increase in cash flows used to finance long-term investments. Those policy changes also improve the performance of the treated firms. Overall, our results suggest that relatively small and low-cost interventions, such as a standard executive education program in finance, can help firms to mitigate financial constraints and potentially affect economic development.
    Keywords: CEOs; Financial Education; financial literacy; Financing constraints; RCT
    JEL: D4 G30 J24 L25 M41 O16
    Date: 2020–09
  6. By: Somdutta Basu (Morgan Stanley); Suraj Shekhar (Ashoka University)
    Abstract: We study incentives under different information regimes by analyzing a rule change in the audit industry in the USA. Since February 2017, the name of the engagement partner has to be disclosed for all audit reports issued in the USA. We show that this quest for transparency has its pitfalls despite the increase in the level of information for investors. While the higher reputation building incentives can improve audit quality, an unintended consequence of the rule is that audit partners have a lower incentive to monitor other partners when names are disclosed. We find conditions under which the latter effect dominates the former.
    Keywords: Audit, Disclosure, Collective Reputation, Engagement partner, Monitoring
    Date: 2021–05
  7. By: Oľga Pastiranová; Jiří Witzany
    Abstract: The purpose of this paper is to empirically analyse the behaviour of expected loan loss provisions during the economic cycle. Provisioning rules under IFRS 9 require creation of the expected credit losses, which have been anticipated to behave countercyclically, and so replaced the rules under IAS 39 widely presumed to have procyclical impact. Observing the dynamics of the economic cycle during the economic downturn resulting from the COVID restrictions, a panel regression has been performed to test the hypothesis that loan loss provisioning rules under IFRS 9 have procyclical impact. The hypothesis was confirmed within the period of 1Q 2015 – 3Q 2020 on the sample of the member countries of the European Union.
    Date: 2021–04–16
  8. By: Baneng Naape; Nyasha Mahonye
    Abstract: This study aims to scrutinize the responsiveness of the South African tax system to changes in economic performance. The study made use of annual time series data spanning from 1995 – 2017. The tax system was found to be fairly buoyant, albeit there is still room for improvement. The ARDL bounds test results indicate that VAT revenue and custom duties grow at a faster pace than the growth in final household consumption and import value, respectively. VAT revenue has a long run buoyancy coefficient of 1.35 while custom duties have a long run buoyancy coefficient of 1.42. This implies that VAT revenue and custom duties are perfectly elastic to variations in their respective bases, at least in the long run. The estimated buoyancy coefficient for total tax revenue growth is 0.82, implying that the growth in total tax revenue did not match the growth of the economy during the estimation period. The government can improve the efficiency and responsiveness of the tax system through good governance and strong political leadership. Furthermore, structural economic reforms are necessary to boost growth and tax revenue mobilisation.
    Keywords: Tax buoyancy, bounds test, tax performance, South Africa
    JEL: O57 H29 E62 H21 H68
    Date: 2020–09
  9. By: Scheuer, Florian; Slemrod, Joel
    Abstract: This paper evaluates proposals for an annual wealth tax. While a dozen OECD countries levied wealth taxes in the recent past, now only three retain them, with only Switzerland raising a comparable fraction of revenue as recent proposals for a US wealth tax. Studies of these taxes sometimes, but not always, find a substantial behavioral response, including of saving, portfolio change, avoidance, and evasion, and the impact depends crucially on design features, especially the broadness of the base and enforcement provisions. Because the US proposals are very different from any previous wealth tax, experience in other countries offers only broad lessons, but we can gain insights from closely related taxes, such as the property and the estate tax, and from optimal tax analysis of the role of wealth taxation.
    Keywords: Capital taxation; inequality; Wealth Taxation
    JEL: H2
    Date: 2020–11
  10. By: Pycia, Marek; Ünver, M. Utku
    Abstract: In environments where heterogeneous indivisible resources are being allocated without monetary transfers and each agent has a unit demand, we show that an allocation mechanism is individually strategy-proof and Arrovian efficient, i.e., it always selects the best outcome with respect to some Arrovian social welfare function if, and only if, the mechanism is group strategy-proof and Pareto efficient. Re-interpreting Arrow's Independence of Irrelevant Alternatives in terms of auditability of the mechanism, we further show that these are precisely the mechanisms that are strategy-proof, Pareto efficient, and auditable.
    JEL: C78 D78
    Date: 2020–10

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