nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2022‒01‒17
five papers chosen by

  1. Determinants and career consequences of early audit partner rotations By Gipper, Brandon; Hail, Luzi; Leuz, Christian
  2. Reporting regulation and corporate innovation By Breuer, Matthias; Leuz, Christian; Vanhaverbeke, Steven
  3. Value-added Tax Reform and Services Exports: Evidence from China By Zhang, Yan; Bai, Zhuoran; Findaly, Christopher
  4. No taxation without informational foundation: On the role of legibility in tax state development By Matthias vom Hau; José Peres-Cajías; Hillel David Soifer
  5. Tradable Emission Permits and Strategic Capital Taxation By Nikos Tsakiris; Panos Hatzipanayotou; Michael S. Michael

  1. By: Gipper, Brandon; Hail, Luzi; Leuz, Christian
    Abstract: We examine how often and why some audit partners rotate off client engagements before the end of the maximum five-year cycle period. Specifically, we investigate whether audit quality issues play a role for engagement partners and clients to separate prematurely. For a sample of about 4,000 within-audit firm partner rotations for Big 6 clients over the 2008 to 2014 period, we find that client characteristics such as financial leverage or performance have little explanatory power. In contrast, severe audit quality issues such as financial restatements or PCAOB inspection findings are associated with early partner rotations. These associations are more pronounced for early rotations that are not explained by scheduled retirements, promotions, or temporary leaves as well as for large clients and when partners are less experienced. We also find that female partners have a higher likelihood of early rotation for audit quality reasons. Early rotations have career consequences. Partners are assigned to fewer SEC issuer clients, manage fewer audit hours, receive lower partner ratings, and are more likely to be internally inspected after being rotated early. Our results suggest that audit quality concerns are an important factor for early partner rotations with ensuing negative career consequences for partners' client assignments and management responsibilities.
    Keywords: auditor rotation,audit quality,audit partners,career development,auditindustry,PCAOB
    JEL: J01 J44 L84 M21 M42
    Date: 2021
  2. By: Breuer, Matthias; Leuz, Christian; Vanhaverbeke, Steven
    Abstract: We investigate the impact of reporting regulation on corporate innovation. Exploiting thresholds in Europe's regulation and a major enforcement reform in Germany, we find that forcing firms to publicly disclose their financial statements discourages innovative activities. Our evidence suggests that reporting regulation has significant real effects by imposing proprietary costs on innovative firms, which in turn diminish their incentives to innovate. At the industry level, positive information spillovers (e.g., to competitors, suppliers, and customers) appear insufficient to compensate the negative direct effect on the prevalence of innovative activity. The spillovers instead appear to concentrate innovation among a few large firms in a given industry. Thus, financial reporting regulation has important aggregate and distributional effects on corporate innovation.
    Keywords: Innovation,Regulation,Disclosure,Financial Reporting,Patents,Growth
    JEL: K22 L51 M41 M42 M48 O43 O47
    Date: 2021
  3. By: Zhang, Yan; Bai, Zhuoran; Findaly, Christopher
    Abstract: In 2012, a sales tax was replaced in China by a value-added tax (VAT). The effect of this change on services exports is evaluated in this paper. VAT reform was introduced across provinces and service sectors at different times, so we can identify the impacts of VAT reform on firms’ export behavior by utilizing a difference-in-difference-in-difference (DDD) estimation methodology. We find that VAT reform significantly increases service exports, in both intensive and extensive margins. The export enhancing effects are larger for non-state-owned enterprises, and for firms of larger scale and higher productivity levels. VAT reform alleviates tax magnification and double taxation, and effectively promotes the competitiveness of China’s services exports.
    Keywords: VAT, Service exports, Export tax rebate
    JEL: F14 H25 L80
    Date: 2021–12
  4. By: Matthias vom Hau; José Peres-Cajías; Hillel David Soifer
    Abstract: This paper combines cross-national statistical analysis and in-depth historical case studies of Argentina and Chile to explore the relationship between two crucial dimensions of state capacity. We show that information capacity contributes to the development of fiscal capacity. States require accurate information about their subject populations, territories, and economies in order to effectively mobilize revenues. In developing this argument this paper makes three broader contributions.
    Keywords: State capacity, Information, Fiscal capacity, Taxation, Statebuilding, Mixed methods, Latin America
    Date: 2021
  5. By: Nikos Tsakiris; Panos Hatzipanayotou; Michael S. Michael
    Abstract: In a model of two large asymmetric countries, we examine the effectiveness of the non-cooperative setting of tradable emission permits in reducing global pollution, under different rules of international taxation of capital earnings. Our key result is that, under certain conditions, the lowest Nash equilibrium level of global pollution is achieved when the policy-mix combines internationally, rather than nationally, tradable emission permits and either capital-tax exemptions or capital-tax credits.
    Keywords: Emission Permits; Cross-border Pollution; Capital Tax Competition; Capital Tax Rules
    JEL: F18 F21 H21
    Date: 2022–01–14

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.