nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2022‒06‒20
six papers chosen by

  1. A Game Theory-based Verification of Social Norms:An Example from Accounting Rules By Eiko Arata; Takuhei Shimogawa; Takehiro Inohara
  2. Asymmetric Investment Rates By Bai, Hang; Li, Erica X. N.; Xue, Chen; Zhang, Lu
  3. How to Record the Allocations of Special Drawing Rights in Government Finance Statistics By International Monetary Fund
  4. Sovereign Spreads and Corporate Taxation By Hayley Pallan
  5. Organizational capacity and profit shifting By Katarzyna Bilicka; Daniela Scur
  6. Corporate Financial Disclosures and the Market for Innovation By Kim, Jinhwan; Valentine, Kristen

  1. By: Eiko Arata (Faculty of Business and Commerce, Keio University); Takuhei Shimogawa (Faculty of Economics, Musashi University); Takehiro Inohara (Institute for Liberal Arts, Tokyo Institute Technology)
    Abstract: This study develops a model that explains why accounting standards, known as Generally Accepted Accounting Principles, are "generally accepted". We focus on depreciation, for which multiple accounting procedures are permitted, and examine the reasons and conditions for acceptance of these procedures with cooperative game theory. Cost allocations given by the straight-line method, which is conventionally used all over the world, are always in the core. On the other hand, cost allocations given by the fair value measurement, which has been recently supported by the International Accounting Standards Board (IASB), are in the core if the market value of the asset predicted by the lease company realizes and the firm (lessee) can obtain the information of the realized value. Furthermore, we examined the relationship between methods adopted in practice and solution concepts that give unique solutions, such as the Shapley value and the nucleolus. Seeking the original solution concept of accounting standards is our next step.
    Keywords: Depreciation;Cooperative game theory;Accounting
    JEL: C71 M41
    Date: 2022–05–10
  2. By: Bai, Hang (University of Connecticut); Li, Erica X. N. (Cheung Kong Graduate School of Business); Xue, Chen (University of Cincinnati); Zhang, Lu (Ohio State University - Fisher College of Business; National Bureau of Economic Research)
    Abstract: Integrating national accounting with financial accounting, we provide firm-specific estimates of current-cost capital stocks for the entire Compustat universe, as well as an array of estimates of investment flows, economic depreciation rates, and capital and investment price deflators. The firm-level current-cost investment rate distribution is heavily right-skewed, with a small fraction of negative investment rates, 5.51%, but a huge fraction of positive investment rates, 91.64%. Despite a tiny fraction of inactive investment rates, 2.85%, firm-level investment also seems lumpy, featuring a fraction of 32.66% for positive spikes (investment rates higher than 20%). For a typical firm, 39% of total investment is completed within 20% of the sample years.
    JEL: D22 D25 E22 E44 G12 G31
    Date: 2022–04
  3. By: International Monetary Fund
    Abstract: This note provides statistical guidance to IMF staff and country authorities on the recording of the 2021 general allocation of Special Drawing Rights (SDRs) in the government finance statistics (GFS), which is also applicable to previous SDR allocations. SDR allocations received by members are recorded as a liability in the form of SDR allocations vis-à-vis the SDR Department of the IMF, which is part of gross debt of the public sector unit (Ministry of Finance/Treasury or central bank or other publicly controlled entity) on whose balance sheet SDRs are recorded, with a corresponding entry for SDR holdings as a financial asset. No transfer of wealth occurs due to the SDR allocation. It should be stressed that the statistical guidelines do not specify on whose balance sheet SDR holdings and allocations should be recorded, as this decision is determined by the member’s domestic legal and institutional arrangements.
    Keywords: Special drawing rights; SDRs; SDR allocation; fiscal statistics; gross debt; fiscal policy analysis; balance sheet SDR holding; GFS recording; allocations of special drawing rights; government finance division; allocation of SDR; Financial statements; Currencies; Interest payments; Global
    Date: 2022–06–07
  4. By: Hayley Pallan (IHEID, Graduate Institute of International and Development Studies, Geneva)
    Abstract: Do sovereign bond investors care about taxation in the countries where they invest? In this paper, I examine the response of sovereign spreads to changes in tax revenues, bases and rates. In simple OLS regressions there is a negligible relationship between sovereign spreads and taxation. However, there are stronger relationships in emerging markets, specifically for corporate taxation. There is a particularly important role of corporate tax base changes in emerging markets for sovereign spreads - this contemporaneous relationship holds using both annual and daily datasets. Additionally, an assessment of how sovereign spreads respond to tax changes under various fiscal environments highlights the role of initial fiscal space in how sovereign spreads respond to aspects of corporate taxation. Finally, I estimate local projections in order to assess the dynamic response of sovereign spreads to corporate taxation. These results are consistent with the finding that corporate tax base expansion (rather than corporate tax rate hikes) are associated with lower borrowing costs for governments in fiscal precarity - most strongly for countries with low levels of fiscal space in the medium term.
    Keywords: Sovereign Spreads, Fiscal Space, Corporate Tax Reform
    JEL: E62 H87 H63
    Date: 2022–06–11
  5. By: Katarzyna Bilicka; Daniela Scur
    Abstract: This paper analyses the effect of a firm's organizational capacity on the reported profitability of multinational enterprises (MNEs). Better organizational practices improve productivity and the potential taxable profits of firms. However, higher adoption of these practices may also enable more efficient allocation of profits across tax jurisdictions, lowering actual taxable profits. We present new evidence that MNE subsidiaries with better such practices, when located in high-tax countries, report significantly lower profits and have a higher incidence of bunching around zero returns on assets. We show these results are driven by patterns consistent with profit-shifting behavior. Further, using an event study design, we find that firms with better practices are more responsive to corporate tax rate changes. Our results suggest organizational capacity, especially monitoring-related practices, enables firms to engage in shifting profits away from their high-tax subsidiaries.
    Keywords: profit shifting, organizational capacity, monitoring practices, multinationals
    Date: 2021–09–07
  6. By: Kim, Jinhwan (Stanford U); Valentine, Kristen (U of Georgia)
    Abstract: We examine the spillover effect of public firm innovation disclosures on the patent trading market. Relative to equity markets, the patent market is decentralized and rife with information frictions, yet it serves as an important mechanism through which innovations reallocate to the most productive users. Using data on patent transactions, we find that going from the 25th percentile to the 75th percentile in innovation-relevant public firm disclosures – proxied by the number of innovation-relevant sentences in 10-K filings – is linked to a 13.0% to 14.9% increase in future patent sales by other parties that likely consume these disclosures. These results are consistent with financial statement disclosures generating positive information externalities useful for trading patents. The positive link between innovation-relevant firm disclosures is stronger where information asymmetry is likely greatest (transactions between public and private firms) and where information uncertainty likely prevails (transactions between private firms) relative to transactions less likely to suffer from information frictions (transactions between public firms). We corroborate that the positive link between public firm disclosures and other parties’ patent sales is likely due to the resolution of information frictions through several cross-sectional tests, the use of proprietary patent broker data, and the plausibly exogenous implementation of Edgar by public firms. Our results speak to an important, but previously underexplored, externality of financial statement disclosures – their contribution to a well-functioning patent market.
    JEL: D23 M40 M41 O30 O31 O32 O34 O39
    Date: 2022–03

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.