nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2021‒05‒31
eight papers chosen by

  1. Board Reforms and Innovation By Muhammad Farooq Ahmad; Oskar Kowalewski
  2. Clearing the Bar: Improving Tax Compliance for Small Firms through Target Setting By Al-Karablieh, Yazan; Koumanakos, Evangelos; Stantcheva, Stefanie
  3. Currency-Induced External Balance Sheet Effects at the Onset of the COVID-19 Crisis By Hale, Galina B; Juvenal, Luciana
  4. Corporate tax avoidance and industry concentration By Martin, Julien; Parenti, Mathieu; Toubal, Farid
  5. Accounting for the Great Divergence: Recent findings from historical national accounting By Stephen Broadberry
  6. Corporate taxes, investment and the self-financing rate. The effect of location decisions and exports By Thomas von Brasch; Ivan Frankovic; Eero Tölö
  7. Profit Shifting of Multinational Corporations Worldwide By Javier Garcia-Bernardo; Petr Jansky

  1. By: Muhammad Farooq Ahmad (SKEMA Business School – University Cote d’Azur, Avenue Willy Brandt - 59777, Lille, France); Oskar Kowalewski (IESEG School of Management, LEM-CNRS 9221)
    Abstract: We study the effect of board reforms on firms’ research and development (R&D) investments utilizing a sample of 40 countries. Using a difference-in-differences analysis, we find that firmsinvest more in R&D following corporate governance reforms. Of these, two reforms–havingan independent audit committee and board independence–have a greater impact on R&Dinvestment. Additionally, we show that reforms have the largest impact on R&D investmentin hi-tech industries and the health sector.
    Keywords: Corporate Governance, Board Reforms, Innovation, Research and Development
    JEL: G3 O30 O32
    Date: 2021–05
  2. By: Al-Karablieh, Yazan; Koumanakos, Evangelos; Stantcheva, Stefanie
    Abstract: We use a new dataset consisting of the universe of Greek corporate tax returns matched to financial statements to study a voluntary tax compliance program for small firms. This "self-assessment" program prescribed target taxable profit margins for different types of activity. Firms that reported profit margins above these targets in a given year were exempt from audits in that year. We find that the firms that take-up the program report significantly larger taxable profits than non-eligible firms, with some evidence of longer-lasting effects on tax reporting. Taxable profits increase by up to 70% of their pre-program levels. We also find that firms can easily and substantially manipulate reported revenue (decreasing it by up to 40%) to help meet prescribed profit margins. Overall, the program increased tax revenues collected from small firms, but points to a very large level of baseline under-reporting of profits and showcases the ease of manipulating reported revenues.
    Keywords: Amnesty; Corporate taxation; Tax avoidance; Tax compliance; taxation
    JEL: H20
    Date: 2020–08
  3. By: Hale, Galina B; Juvenal, Luciana
    Abstract: At the onset of the COVID-19 economic crisis, as in other crisis episodes, the flight to safety was accompanied by a rapid appreciation of "safe haven" currencies. We quantify the aggregate external balance sheet effects of this episode using new data on the currency composition of cross-border portfolio debt and other investment (which mostly represents banking positions) for 48 countries. We find that, while currency mismatch was present on many countries' external balance sheets at the onset of the current crisis, the magnitude of this mismatch was modest and the resulting external balance sheet losses at the aggregate level are small. To account for the potential mismatch that may have resulted from domestic investments by financial intermediaries borrowing abroad, we compute an upper bound for possible losses and find that they might be quite sizable for a number of countries. These results highlight the importance of accounting for domestic assets when assessing currency-induced balance sheet effects.
    Keywords: Balance sheet effects; Coronavirus; COVID-19; currency mismatch; Flight to safety
    JEL: F32 F34 G15
    Date: 2020–08
  4. By: Martin, Julien; Parenti, Mathieu; Toubal, Farid
    Abstract: This paper argues that tax avoidance by large corporations has contributed to the 25% increase in concentration among U.S. firms since the mid-1990s. Corporate tax avoidance gives large firms a competitive edge, which translates into larger market shares and an increase in the granularity of the economy. We develop IV and difference-in-differences strategies that show the causal impact of tax avoidance on firm-level sales. Had firms not resorted to tax avoidance in 2017, our results imply that the average industry concentration would have been 8.3% lower, which is around its early 2000 level.
    Keywords: industry concentration; IRS Audit Probability; Tax avoidance
    JEL: D22 D4 F23 H26 L11
    Date: 2020–07
  5. By: Stephen Broadberry
    Abstract: As a result of recent work on historical national accounting, it is now possible to establish more firmly the timing of the Great Divergence of living standards between Europe and Asia in the eighteenth century. There was a European Little Divergence as Britain and the Netherlands overtook Italy and Spain, and an Asian Little Divergence as Japan overtook China and India. The Great Divergence occurred because Japan grew more slowly than Britain and the Netherlands starting from a lower level, and because of a strong negative growth trend in Qing dynasty China. A growth accounting framework is used to assess the contributions of labour, human and physical capital, land and total factor productivity. In addition to these proximate sources, the roles of institutions and geography are examined as the ultimate sources of the divergent growth patterns.
    Keywords: Great Divergence; living standards; measurement; explanation
    JEL: N10 N30 N35 O10 O57
    Date: 2021–03–17
  6. By: Thomas von Brasch (Statistics Norway); Ivan Frankovic; Eero Tölö
    Abstract: In this paper, we study how lower corporate tax rates impact investment by including two novel channels into a DSGE model used for fiscal policy analysis in Norway. We capture both how foreign firms relocate and invest in the country when corporate taxes are reduced and how the inflow of FDI increase exports which spills over to domestic firms who then increase their investment further. We find that a one percentage point reduction in the corporate tax rate increases investment by 0.6%, most of which can be attributed to the FDI-export link. The corporate tax cut becomes self-financed when the FDI-export link is included, but only if other countries do not follow suit and also lower their corporate tax rates. When using the model to analyze the tax reform in Norway from 2014 to 2019, we find overall positive effects on investment and employment.
    Keywords: Corporate profit tax; Foreign direct investment; Exports; Imports; User cost of capital; Depreciation; Tax reform
    JEL: E62 H21 H25 H32
    Date: 2021–05
  7. By: Javier Garcia-Bernardo (Tax Justice Network, CORPTAX, Charles University in Prague); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: We exploit the new multinational corporations´ country-by-country reporting data with unparalleled country coverage to study profit shifting to tax havens. We show that a logarithmic function is preferable to linear and quadratic ones for modelling the extremely non-linear relationship between profits and tax rates. Using this methodology, we reveal that multinational corporations shifted US$1 trillion of profits in 2016 and that those headquartered in the United States and China did so most aggressively. We establish that the Cayman Islands is the largest tax haven, whereas countries with lower incomes tend to lose more tax revenue relative to total tax revenues.
    Keywords: multinational corporation, corporate taxation, profit shifting, effective tax rate, country-by-country reporting, global development
    JEL: F23 H25 H26 H32
    Date: 2021–05
  8. By: Zinsou Daniel Nakou (ESP-LMAGI - École supérieure Polytechnique de Dakar - UCAD - Université Cheikh Anta Diop [Dakar, Sénégal]); Serge Francis Simen (ESP-LMAGI - École supérieure Polytechnique de Dakar - UCAD - Université Cheikh Anta Diop [Dakar, Sénégal])
    Abstract: This paper aims to analyze the relationship between governance mechanisms on the performance of Beninese public enterprises. We carried out a quantitative study based on a questionnaire with 200 employees in 20 Beninese public companies whose data were presented and processed in the SPSS 21.0 and Amos 21.0 software. Our results indicated on the one hand that the characteristics and the various committees of the Board of Directors as well as the Statutory Auditor represent the main internal mechanisms of the governance system of Beninese public enterprises; the Technical and Financial Partners and the managerial labor market represent the main external mechanisms of the governance system of Beninese public enterprises. As for the effects of the main mechanisms of the governance system on the performance of Beninese public enterprises, the analysis of the results reveals a negative influence of the managers' labor market on the performance of enterprises; while the characteristics and mode of operation of the Statutory Auditors have no effect on the latter. On the other hand, the characteristics and the different committees of the Board of Directors as well as the Technical and Financial Partners have a positive influence on the performance of Beninese public enterprises.
    Abstract: Ce papier se propose d'analyser la relation entre les mécanismes de gouvernance sur la performance des entreprises publiques béninoises. Nous avions procédé à une étude quantitative basée sur un questionnaire auprès de 200 salariés dans 20 entreprises publiques béninoises dont les données ont été présentées et traitées dans les logiciels SPSS 21.0. Nos résultats ont indiqué d'une part, que les caractéristiques et les différents comités du Conseil d'Administration ainsi que le Commissariat aux Comptes représentent les principaux mécanismes internes du système de gouvernance des entreprises publiques béninoises ; d'autre part, que les Partenaires Techniques et Financiers ainsi que le marché du travail des managers représentent les principaux mécanismes externes du système de gouvernance des entreprises publiques béninoises. Quant aux effets des principaux mécanismes du système de gouvernance sur la performance des entreprises publiques béninoises, l'analyse des résultats révèle une influence négative du marché du travail des managers sur la performance des entreprises tandis que, les caractéristiques et le mode de fonctionnement du Commissariat aux Comptes sont sans effet sur cette dernière. Par contre, les caractéristiques et les différents comités du Conseil d'Administration ainsi que les Partenaires Techniques et Financiers ont une influence positive sur la performance des entreprises publiques béninoises.
    Keywords: Statutory Auditors,Public company,corporate governance mechanisms,performance,Board of Directors,Conseil d’Administration,mécanismes de gouvernance d’entreprise,Entreprise publique,Commissariat aux Comptes
    Date: 2021

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