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on Accounting and Auditing |
| By: | Paolo Panteghini |
| Abstract: | This paper shows that a static trade-off model generates a negative cross-sectional relationship between leverage and profitability once ex ante Nash bargaining over the perpetual debt coupon is introduced. The central mechanism works as follows: higher shareholder bargaining power lowers the negotiated coupon, which reduces leverage — the ratio of debt to equity — and shrinks the interest tax shield, thereby lowering firm value for fixed earnings before interest and taxes (EBIT) and raising the earnings yield. Heterogeneity in bargaining power across firms thus produces a negative co-movement between leverage and valuation-based profitability in the cross-section. A key implication concerns how this mechanism maps into accounting data. Under historical-cost measurement (GAAP), book assets do not respond to the bargaining environment, so the mechanism is attenuated in reported return on assets (ROA). Under fair-value-oriented measurement (IFRS), book assets track enterprise value more closely, making the negative relationship more visible in the data. This asymmetry has particular relevance for multinational groups operating across jurisdictions with heterogeneous accounting standards, where within-group comparisons of leverage and profitability may be systematically distorted by the coexistence of the two regimes. |
| Keywords: | capital structure, trade-off theory, Nash bargaining, leverage-profitability puzzle, creditor rights, accounting standards |
| JEL: | G32 G33 H25 K22 M41 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12639 |
| By: | Jens Robert Schoendube; Barbara Schoendube-Pirchegger (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) |
| Abstract: | In this paper we model the interaction between an auditor and a client firm. The client firm’s manager can either report truthfully or commit fraud. The auditor needs to plan a two stage audit that allows to detect fraud. In the first stage an AI tool is employed that provides a signal about the quality of the client’s internal control system (ICS). Classifying the ICS as weak or strong, the signal alters the auditor’s expectations regarding the client’s fraud probability. In the second stage, the auditor decides about her audit effort conditional on the information provided by the AI. Comparing the AI setting to a benchmark setting without AI use, we find that employing the AI tool reduces the manager’s incentives to commit fraud. At the same time it reduces the equilibrium effort provided by the auditor. As a consequence, the probability that actual fraud is detected remains unchanged. We extend our model and allow the AI tool to be customized such that it can either focus on detection of the weak ICS, the strong ICS, or on both equally. We find that the AI specification that minimizes ex ante probability for fraud not necessarily coincides with the specification that minimizes auditing costs. It follows that the auditor in charge of customizing the AI cannot necessarily be expected to do so in a fraud minimizing way. |
| Keywords: | Artificial Intelligence, Auditing, Game Theory, Fraud detection |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:mag:wpaper:25004 |
| By: | Power, Michael |
| Abstract: | In this Perspective essay, I offer some provocations about the future of auditing. I suggest that auditing is currently undergoing technological change in its practice unlike any other in its history in which notions of evidence and auditability have become fluid. The pervasiveness of algorithms in auditee systems necessitates that auditing itself becomes algorithmic in nature. Although there may be considerable efficiency benefits from this, there is a risk that auditing becomes ‘platformized’ as one app attached to auditee systems. This in turn implicates the non‐independence of the evidentiary basis of the audit. At the extreme, auditing becomes algorithmically self‐referential, and the human auditor is reduced to the ‘de‐skilled’ curator of analytical models and their decisions. At the same time, the underlying algorithms remain beyond auditability and human comprehension. I suggest that scholars have an opportunity to explore these processes empirically and that practitioners and professional institutes need to be vigilant about the side effects of technology in auditing. They must nurture the human‐centric and dialogic nature of the practice in the face of these changes. |
| Keywords: | auditability; audit evidence; transparency; datafication; algorithm; artificial intelligence |
| JEL: | M40 |
| Date: | 2026–04–26 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:138062 |
| By: | Christl, Michael; Köppl-Turyna, Monika |
| Abstract: | This paper examines whether the design of a country's tax system matters for economic growth using the Tax Foundation's International Tax Competitiveness Index (ITCI), a composite of more than 40 legislated tax-policy variables spanning corporate, individual income, consumption, property, and cross-border tax rules. Exploiting within-country variation across 23 European economies over 2014-2024, we estimate two-way fixed-effects panel regressions and dynamic distributed-lag specifications. Three findings emerge. First, improvements in aggregate tax competitiveness are positively and significantly associated with real GDP per capita growth, robust to a wide range of controls. Second, this aggregate effect is driven entirely by the corporate tax pillar; no other component displays a significant growth effect. Third, the corporate tax effect materializes contemporaneously and accumulates over time, with a statistically significant three-year cumulative effect of approximately 0.16 percentage points per one-point improvement in the corporate tax score. These results suggest that the full architecture of the corporate tax system, not merely the headline statutory rate, is what matters for growth. |
| Keywords: | tax competitiveness, corporate taxation, economic growth, growth regressions |
| JEL: | H20 H25 O40 O43 E62 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1754 |