nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2022‒02‒28
four papers chosen by

  1. A Typology of Captive Financial Institutions in Luxembourg: Lessons from a New Database By Di Filippo, Gabriele; Pierret, Frédéric
  2. Why Are Returns to Private Business Wealth So Dispersed? By Corina Boar; Denis Gorea; Virgiliu Midrigan
  3. Tax Policy for Inclusive Growth in Latin America and the Caribbean By Carlo Pizzinelli; Samuel Pienknagura; Santiago Acosta-Ormaechea
  4. Corporate disclosure, compliance and consequences: evidence from Russia By Banerjee, Suman; Estrin, Saul; Pal, Sarmistha

  1. By: Di Filippo, Gabriele; Pierret, Frédéric
    Abstract: The paper draws a typology of captive financial institutions and money lenders (CFIs, sector S127) in Luxembourg from a new database. The latter retrieves information from three sources: the EuroGroups Register managed by Eurostat, the Statistical Business Register managed by the STATEC (National Institute for Statistics and Economic Studies) and the Central Balance Sheet Register managed by the STATEC. The new database enhances the data coverage of CFIs in Luxembourg. Indeed, it includes not only CFIs with total assets larger or equal to EUR 500 million as in the BCL reporting (BCL (2014)), but also CFIs whose total assets are lower than EUR 500 million. The period of analysis spans 2011 to 2019. Results show that CFIs present different characteristics depending on their balance sheet size. On the one hand, CFIs with total assets larger than EUR 100 million mainly regroup holding companies, intragroup lending corporations, mixed structures and conduits. On the other hand, CFIs with total assets lower than EUR 100 million feature mostly mixed structures. Overall, while holding corporations own the majority of total assets, the largest number of companies consists of mixed structures.
    Keywords: Captive financial institutions and money lenders, Sector S127, Typology, EuroGroups Register, Statistical Business Register, Central Balance Sheet Register, Big Data
    JEL: C80
    Date: 2022–02
  2. By: Corina Boar; Denis Gorea; Virgiliu Midrigan
    Abstract: We use micro data from Orbis on firm level balance sheets and income statements to document that accounting returns for privately held businesses are dispersed, persistent, and negatively correlated with firm equity. We also show that firms experience large, fat-tailed, and partly transitory changes in output that are not fully accompanied by changes in their capital stock and wage bill. This implies that capital and labor choices are risky, as fluctuations in output are accompanied by large changes in firm profits. We interpret this evidence using a model of entrepreneurial dynamics in which return heterogeneity can arise from both limited span of control, as well as from financial frictions which generate differences in financial returns to saving. The model matches the evidence on accounting returns and predicts that financial returns to saving are half as large and dispersed as accounting returns. Financial returns mostly reflect risk, as opposed to collateral constraints which play a negligible role due to firms' unwillingness to expand and take on more risk.
    JEL: E2 E44 G32
    Date: 2022–01
  3. By: Carlo Pizzinelli; Samuel Pienknagura; Santiago Acosta-Ormaechea
    Abstract: This study provides an overview of tax structures in LAC before the COVID-19 pandemic, compares it to OECD countries, and provides recommendations for growth-friendly and inclusive tax policy reforms. LAC countries collect significantly lower tax revenue relative to OECD countries and have tax structures that rely excessively on corporate-income taxes (CIT) while personal-income taxes (PIT) remain largely underutilized. LAC countries could strengthen their PIT to mobilize revenue and improve progressivity by addressing critical design flaws. Possible adverse growth effects could be mitigated by providing incentives to labor force participation and formalization (e.g., through earned-income tax credits). The ongoing global corporate income tax reforms present a great opportunity to reassess thoroughly the CIT in LAC. Specifically, reforms would need to focus on aligning CIT statutory rates with those of other regions—when assessed to be relatively high—to attract investment and alleviate profit shifting, and on broadening the corporate tax base. Value-added taxes (VAT) could be improved by tackling exemptions and reduced rates. Furthermore, while estimates of additional revenue from levying the VAT on the digital economy appear modest, taxing this sector as others in the economy is critical to avoid further tax base erosion.
    Keywords: Taxation, Progressivity, Inclusive Growth, Latin America and the Caribbean
    Date: 2022–01–21
  4. By: Banerjee, Suman; Estrin, Saul; Pal, Sarmistha
    Abstract: Does the introduction of corporate transparency and disclosure rules in emerging economies affect compliance, and therefore earnings quality and firm performance? We explore these questions for an important emerging economy, Russia, using a natural experiment, the 2002 introduction of Russian corporate governance code. We exploit the exogenous variation in voluntary disclosure and find a significant increase in corporate disclosure among the domestic Russian firms over the period 2003–2007 when firms gradually adopted some but not all disclosure rules. The immediate effect of the introduction was a drop in reported earnings. Market valuation, however, only improved for domestic firms after 2007, when all domestic firms had complied. However, cross-listed firms, which were already satisfying international standards, remained largely unaffected. Though average compliance by domestic firms was only 53%, average firm value of treated domestic firms, relative to cross-listed ones, went up by about 10%. Results are robust, confirm external validity and offer important policy implications for other emerging/ transition economies.
    Keywords: increased disclosure; processing cost of information; market valuation; reported earnings; cost of capital; domestic vs. cross-listed firms; 2002 Russian corporate governance code; differnence-in-difference model; Russia
    JEL: G30 K29 O38
    Date: 2021–12–17

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