|
on Accounting and Auditing |
| By: | Claßen, Dominik |
| Abstract: | This cumulative dissertation examines the role, determinants, and consequences of audit materiality disclosures, with a particular emphasis on their function as transparency and signaling mechanisms in capital markets. Audit materiality is a core concept in auditing, as it determines audit scope, audit effort, and ultimately audit quality. Despite its central importance, materiality has traditionally remained an internal audit planning parameter and has only recently become subject to public disclosure in a small number of jurisdictions through expanded auditor reporting regimes. Positioned at the intersection of audit transparency, audit quality, and signaling theory, this dissertation contributes to the emerging literature by providing integrated archival and experimental evidence on how materiality is applied by auditors in practice and how disclosed materiality information is interpreted by different sophisticated user groups. The first paper provides large‑sample archival evidence from the United Kingdom, one of the few jurisdictions that mandate public disclosure of quantitative audit materiality. Analyzing auditor’s reports, the study documents substantial and systematic heterogeneity in auditors’ materiality judgments, including variation in benchmarks, percentage rates, and absolute materiality thresholds across audit firms, industries, and engagement characteristics. The findings show that materiality disclosures frequently exceed minimum regulatory requirements and that auditor changes are associated with more conservative materiality determinations, highlighting the discretionary nature of materiality and its potential to convey engagement‑specific information about auditors’ professional judgment and audit approach. The second paper experimentally investigates the signaling role of materiality disclosures for internal governance actors. Focusing on supervisory board members, the study examines how disclosed materiality thresholds and benchmarks affect perceived audit quality, the likelihood of auditor reappointment, and the perceived need for additional auditor explanations. The results show that supervisory board members correctly understand the inverse relationship between materiality and audit effort and systematically incorporate disclosed materiality information into their judgments. Lower materiality thresholds are interpreted as signals of higher audit quality and lead to more favorable evaluations of the auditor, while the choice of benchmark plays a limited role as long as it does not affect the absolute materiality level. The third paper extends the analysis to capital market intermediaries by examining financial analysts’ responses to quantitative materiality disclosures in the auditor’s report. Using a controlled experiment, the study analyzes whether the presence and level of disclosed overall materiality affect analysts’ assessments of audit quality, auditor reappointment likelihood, and credit‑related judgments, and whether these effects interact with auditor tenure. The findings demonstrate that materiality disclosures are behaviorally and economically relevant for financial analysts and function as audit‑quality signals that are interpreted jointly with other observable audit characteristics. Lower disclosed materiality thresholds are associated with more favorable perceptions and decisions, consistent with a signaling interpretation, while the incremental informativeness of materiality disclosures depends on the surrounding information environment. Taken together, the three papers provide complementary evidence on audit materiality disclosures from the perspectives of auditors, internal governance actors, and capital market intermediaries. The dissertation demonstrates that materiality disclosures convey economically meaningful information, but that their interpretation is inherently context‑dependent and shaped by user expertise and competing signals. By integrating supply‑side disclosure practice with demand‑side user interpretation within a unified signaling framework, the findings contribute to the literature on audit quality, audit transparency, and disclosure‑based signaling, and inform ongoing regulatory debates on the benefits and limitations of expanding auditor reporting requirements. |
| Date: | 2026–07–20 |
| URL: | https://d.repec.org/n?u=RePEc:dar:wpaper:161481 |
| By: | Koch, Reinald; Rehrl, Christoph; Spengel, Christoph |
| Abstract: | Over the past decade, the European Union has built a comprehensive supranational framework to combat corporate tax avoidance. This article provides the first integrated assessment of the EU's post-2015 anti-avoidance architecture, combining evidence on profit shifting by European multinationals, the effectiveness and side-effects of individual regulatory instruments, and the cumulative costs of tax complexity. While these measures have reduced specific profit-shifting channels, their marginal revenue impact appears limited relative to the rise in tax complexity, compliance costs, and distortions to investment, risk-taking, and innovation. The uneven global implementation of recent instruments - notably the Global Minimum Tax and public country by-country reporting - has created a competitive asymmetry in which European multinationals bear regulatory burdens that their non-European competitors largely do not. The article concludes with policy recommendations to recalibrate the framework, eliminating rules whose marginal costs outweigh their marginal benefits while restoring the balance between enforcement and competitiveness that the EU's standard of "fair and efficient taxation" demands. |
| Keywords: | Anti-tax avoidance, profit shifting, ATAD, Global Minimum Tax (Pillar Two), tax policy, corporate tax competitiveness |
| JEL: | H26 H25 F23 H87 K34 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:341997 |
| By: | Bilicka, Katarzyna; Devereux, Michael P; Güçeri, Irem |
| Abstract: | Many multinational firms (MNEs) pay low or no corporation tax in high-tax countries because they shift taxable income to tax havens. We incorporate nonconvex costs of profit shifting and unobserved heterogeneity in profit-shifting ability in the MNEs’ value maximization problem to study responses of firms to tax policies. We estimate our model using UK corporate tax returns data and quantify: (i) the elasticities of tax base and capital stock with respect to tax rates, (ii) the fixed and variable components of profit-shifting costs for different firm types, and (iii) the government’s trade-off between raising tax revenue by reducing profit shifting and attracting investment. Accounting for extensive margin profit-reporting decisions, we reconcile most of the discrepancies between previous micro- and macro-level estimates of tax base elasticities. We test the predictions of the model using a quasi-natural experiment that restricted profit-shifting by Italian MNEs that operated in the UK and evaluate two types of tax policies that can be analyzed using our approach. |
| Keywords: | investment |
| JEL: | H25 H26 H32 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19658 |
| By: | Guay, Wayne; Kim, Chongho; Timmermans, Oscar |
| Abstract: | We examine the role of firms’ internal information quality (IIQ) in designing executive incentive contracts. We find that higher IIQ is associated with a greater number of performance metrics and increased dissimilarity from peer firms’ contracts, particularly along non-financial dimensions. These relations hold when we examine changes in IIQ that are likely induced by plausibly exogenous shifts in two financial accounting standards. We further find that incorporating more numerous and more dissimilar non-financial metrics is positively associated with future profitability, but only when IIQ is high. Our results are consistent with the hypothesis that the quality of a firm’s internal information is a friction in performance metric selection. |
| Keywords: | executive compensation;information environment;managerial incentives;contract |
| JEL: | D82 J33 M12 M41 |
| Date: | 2026–08–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:138070 |
| By: | James Bessen |
| Abstract: | Research finds that R&D and software expenditures are highly skewed: large firms spend much more relative to their sizes than do small firms (e.g., see James and Xiupeng Wang. 2025. “The Intangible Divide: Why do so few firms invest in innovation?†Center for Economic Studies Working Paper, CES25-15). To what extent is this the result of firms not reporting these survey items and to what extent are many firms reporting zero values for these items? Moreover, how accurate is firm reporting relative to external sources? One concern is that firms might over- or under-report their actual investments. Perhaps small firms under-report because they have a harder time tracking intangible investments. On the other hand, perhaps large firms re-categorize expenses to exaggerate R&D spending in order to earn bigger R&D tax credits; this is not a concern with software. This note first establishes the extent of non-reporting and zero reporting. Then, using a linear probability model, it looks at the correlates of non- and zero reporting. Finally, it checks the external validity of survey estimates by comparing R&D spending on personnel reported in the BRDIS survey to labor compensation costs of scientists and engineers estimated with data from the Current Population Survey. |
| Keywords: | BERD, ACES, CPS |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:cen:tnotes:26-21 |
| By: | Caplan, David |
| Abstract: | Gross Domestic Product (GDP) is a key macroeconomic indicator. There are three ways of measuring GDP – the production, expenditure and income approaches – which are theoretically equal but differ in practice. National accountants therefore need to decide how to reconcile three different approaches – often using a balancing approach. International manuals make recommendations, but individual country practice is highly variable. This report examines how different countries approach the reconciliation and balancing of GDP estimates in practice. Drawing on questionnaires, interviews and documentation from nine national statistical systems, it identifies key dimensions along which national approaches differ. The report explores how these differences reflect institutional context, data availability and professional judgement. GDP balancing is best understood not as a technical optimisation problem but as an institutional process for managing uncertainty. Because the error structures of underlying data sources are often unknown, compilers cannot rely on purely mechanical optimisation to produce a single GDP estimate. Instead, balancing architectures combine accounting frameworks, professional judgement, institutional structures and analytical tools to reconcile estimates while preserving the informational value of source data. The comparative analysis identifies several dimensions along which national approaches differ, including: the overall approach to compilation and balancing; the assumptions about data reliability; use of mathematical optimisation tools; and treatment of discrepancies between the measures. These differences reflect institutional history, data availability and organisational structures rather than divergence in accounting principles. The findings highlight both the value and the limits of balancing. Reconciliation strengthens the coherence of national accounts by confronting information from multiple sources, but it cannot fully compensate for weaknesses in underlying data. Such weaknesses may arise from noise in individual data sources or from the need to combine sources that are accurate yet not fully compatible because they were designed for different purposes. Where discrepancies persist, they should be interpreted as signals about data quality rather than problems to be resolved mechanically. Differences in national balancing practices therefore represent alternative ways of managing uncertainty within a shared accounting framework. |
| Keywords: | Gross Domestic Product; Balancing accounts; International statistical practice |
| JEL: | C82 E01 E02 |
| Date: | 2026–05–07 |
| URL: | https://d.repec.org/n?u=RePEc:eoe:escoet:escoe-tr-34 |