The Influence of Country,Industry, and Topic Factors on IFRS Policy Choice

This paper proposes a framework for understanding management's decision‐making on observable accounting policy choices. The framework is used to hypothesize how country, industry, and topic factors influence policy choice under International Financial Reporting Standards (IFRS). The hypotheses are tested on the choices made by the largest firms from 10 jurisdictions on a comprehensive set of IFRS policy topics, which are hand‐collected from the financial statements. The results are consistent with the framework: country factors are particularly influential when the choice does not affect an important accounting number; and industry and topic factors influence the choice on some topics. Overall, we find that country factors have the greatest influence on IFRS policy choice.     

REGULATING CHARITABLE SOLICITATION PRACTICES – THE SEARCH FOR A HYBRID SOLUTION

A review of four fundraising regulatory models currently in existence in common law jurisdictions reveals a mismatch between the stated policy goals that these models set out to achieve and the practical, albeit unintended, consequences that flow from the implementation of these models. The paper highlights some of these policy/implementation discords. It proposes a hybrid model, which is designed to resolve some of these inconsistencies, and considers the potential for the model's practical application in one of the jurisdictions surveyed, Ireland.     

TIME SERIES ANALYSIS OF ACCOUNTING POLICY CHOICE: REPLY

Taylor (1992) argues that accounting policy choices in any year are not assessed independently of policy choices adopted in previous years. This independence assumption is a maintained hypothesis of Anderson and Zimmer (1992). Although Taylor acknowledges that our results remain robust to his suggested adjustments for non-independence, we argue in this reply that such adjustments are unnecessary because temporal independence of accounting policy choices is consistent with the implications of costly contracting between the firm and its claimholders. We develop the arguments that (1) accounting choices are temporally independent and our research design is therefore, appropriate (2) to the extent that there is an independence problem of the type proposed by Taylor (1992) it also applies to cross-sectional studies of accounting policy choice.     

Firm Size and National Profiles of IFRS Policy Choice

Previous research on the International Financial Reporting Standards (IFRS) policy choices of large listed companies found a very strong association between policy choice and country. Nationally based pre‐IFRS practices largely explain IFRS policy choices. Nevertheless, some of the policy choices appear to be influenced from abroad, perhaps chosen in order to increase comparability. It has been suggested that smaller companies might be less influenced from abroad, and therefore might display even clearer national profiles of IFRS practice. This paper examines the accounting policy choices made within IFRS financial statements by small listed companies in five major countries. We find highly significant differences between the policies of small and large companies. We also find that small companies make more homogeneous choices, within a country, than large companies do. As a result, the previously published national profiles of the IFRS practices of large companies are misleading in the context of smaller ones.     

New legislative measures in South Africa aimed at combating over‐indebtedness—are the new proposals sufficient under the constitution and law in general?

The National Credit Bill codifies a number of fundamental rights of consumers in the credit market. It provides inter alia for a right to information to enable consumers to make informed choices and thereby contributes to one of the purposes of the proposed legislation, namely to provide mechanisms to combat over‐indebtedness. The main purpose of this research is to evaluate the proposed measures in the Bill aimed at combating over‐indebtedness and also to determine to which extent these measures comply with the general constitutional consumer protection demands. In order to achieve this, the relevant guidelines of the INSOL Consumer Debt Report and measures in other jurisdictions will also be considered. Since the South African Constitution does not directly obligate the state to enact specific credit laws and as the Bill seeks, in the spirit of the supreme law, to codify certain basic consumer rights, the new legislative initiatives are to be welcomed. It is, however, submitted that the Bill does not go far enough in achieving its particular aims and objectives and that more could be done to bring South African legislation in line with measures in other jurisdictions. Copyright © 2006 John Wiley & Sons, Ltd.     

THE ROLE OF TIME SERIES ANALYSIS IN STUDIES OF ACCOUNTING POLICY CHOICE: A COMMENT

The study by Anderson and Zimmer [1992] of goodwill accounting policies uses a pooled time series experimental design. This approach can add substantially to our understanding of accounting policy choices, but not in the manner used by Anderson and Zimmer. Where accounting policy choices are believed to be independent from one period to the next, then a time series approach can greatly enhance our ability to capture the influence on such policy choices of changing circumstances, more so than a simple cross-sectional test. Conversely, if accounting policy choices are not independent between periods, pooling over time can overstate significance levels of statistical tests. The nature of Anderson and Zimmer's data makes the impact indeterminate. However, even under an extreme assumption, pre-regulation evidence remains significant at conventional levels.     

Income Redistribution with Well-Informed Local Governments

This paper examines the problem of redistributing incomeacross jurisdictions and to mobile workers within jurisdictionswhen local governments have better information than the centralgovernment about local production conditions. Under the centralgovernments optimal policy, the subsidies or taxes that localgovernments provide to mobile workers normally depend on whetherthese governments are net recipients or net donors of interjurisdictionalincome transfers. Moreover, the public-input decisions of somelocal governments are distorted. The analysis demonstrates thatit may not be desirable to harmonize social policies across jurisdictions,even when the beneficiaries are quite mobile.     

DETERMINANTS OF ACCOUNTING POLICY CHOICE IN THE AUSTRALIAN PROPERTY INDUSTRY: A PORTFOLIO APPROACH

The objective of this research is to explain accounting policy choice in the Australian property industry by reference to costly contracting theory. This paper makes three departures from the predominant literature. First, instead of focusing on a single policy choice, it focuses on a portfolio of 15 choices. Second, instead of measuring each policy choice dichotomously, it measures the dollar effect of each policy choice. Finally, the research focuses on the impact of policy choices on owners' equity as well as income. The results confirm the importance of compensation arrangements as a determinant of accounting policy choice but fail to provide evidence that debt constraints or political costs are significant determinants of accounting policy choice. These results suggest that including property firms in a more heterogeneous sample may reduce the power of tests on the debt constraints and political costs hypotheses. More generally (when compared to previous research) the results suggest that the determinants of policy choice are likely to be industry specific.     

The effects of agglomeration on tax competition: evidence from a two-regime spatial panel model on French data

This article studies how agglomeration economies affect tax competition between local jurisdictions. We develop a theoretical model with two main testable predictions: in a setting where agglomeration forces lessen the responsiveness of capital to tax, high-regime agglomeration jurisdictions should adopt a rent-taxing behavior, and they should react less to their neighbors’ tax policies. The panel dataset spans the period from 1995 to 2007 and focuses on the local business taxes set at the French mid-subnational jurisdiction level of départements. First, instrumental variables estimates indicate that attractive jurisdictions capture a significant part of firms’ agglomeration rent by levying higher tax rates. An increase by 1% of the localization economies indicator (a specialization index) leads to increasing the business tax rate by 0.43%. Second, local tax setting behaviors are characterized by a mimetic behavior, with best response functions that slope upwards. We propose a two-agglomeration-regime spatial lag model to estimate through ML the relationship between tax competition and attractiveness. Our main result shows that both are linked and tax mimicry is less pronounced if a jurisdiction is agglomerated. Specifically, in response to a decrease in the tax rate of neighboring local governments by 1%, local governments with strong agglomeration economies reduce their tax rate by 0.4% against 0.6% for local government characterized by a low-agglomeration regime. We show that the classical one-size-fits-all-case of a single regime of agglomeration suffers from a 40% downward bias for low-agglomeration jurisdictions. We draw the link to policy praxis by discussing the optimal design of equalization schemes.     

A Statistical Model of International Accounting Harmonization

This article shows how the difference between the observed frequencies of accounting policy choice and the outcome of a random policy choice, where each available method has an equal chance of being selected, may be fully explained with a statistical model. The process of harmonization is described in a way that identifies departures from equiprobable accounting policy choice as either: (a) the systematic effects of harmonization, or (b) the effects of systematic divergence from international harmony where the frequency of adoption of differing accounting methods varies across countries, or (c) the effects of company-specific accounting policy choices. The understanding of harmony that underlies previous attempts to measure harmonization is such that, with respect to a particular financial statement item, a situation of maximum harmony is reached when all companies in all countries use the same accounting method. From the standpoint of modelling the harmonization process. however, a different concept of harmony may be more useful. In this article, therefore, we posit a state of distributional harnzony in which, other things being equal, the expected distribution of accounting policy choices is the same in each country. In this theoretical state. the odds of selecting a given accounting method from those available for a particular financial statement item are identical for each country. A major advantage of this benchmark is that it provides a basis for distinguishing between two possibly conflicting components of the international harmonization process: between-country harmonization and within-country standardization. A hierarchy of nested statistical models is then used to describe accounting policy choices made by companies with an international shareholding and registered in Europe, where the European Union has been involved in a program of accounting harmonization. The accounting policies analysed in depth in this article comprise the treatment of goodwill and accounting for deferred taxation. The results are compared with the comparability index method used previously in harmonization research studies.     

Credit Management: An Examination of Policy Choices, Practices and Late Payment in UK Companies

A central element in developing credit management policy involves design choices on the extent to which credit activities are best managed internally or through specialist market intermediaries. This paper draws on the findings of a survey on the credit management practices and policies of large UK companies to: (1) Examine the type of firm most likely to enter into specialist external credit management structural arrangements; and (2) Identify contextual and credit policy choices influencing the credit period taken and late payment of debts. The study found that specialist intermediaries are not particularly common in large firms. The paper also identifies a number of contextual and policy variables that help explain variation in debtor days and late payment by customers.     

Managerial incentives and risk-taking

We provide empirical evidence of a strong causal relation between managerial compensation and investment policy, debt policy, and firm risk. Controlling for CEO pay-performance sensitivity (delta) and the feedback effects of firm policy and risk on the managerial compensation scheme, we find that higher sensitivity of CEO wealth to stock volatility (vega) implements riskier policy choices, including relatively more investment in R&D, less investment in PPE, more focus, and higher leverage. We also find that riskier policy choices generally lead to compensation structures with higher vega and lower delta. Stock-return volatility has a positive effect on both vega and delta.     

Political Accountability and Fiscal Federalism

In a model with democratic institutions and three jurisdictions, we study the allocation and welfare in a one-level (unitary) and a two-level (federal) government, given that the central government finds it optimal to discriminate in favor of two jurisdictions and against the third. Favored jurisdictions are at least as well off in a unitary structure as compared to a federal one, while this may not be so for the jurisdiction discriminated against. We finally show that jurisdiction-specific electoral uncertainty is consistent with both equitable as well as discriminating allocations.     

Race to the top or bottom? Corporate governance,freedom of reincorporation and competition in law

Summary This paper investigates the governance structure choices of firms when there is competition between legal systems. We study the impact of the allocation of control over choice of governance and reincorporation on firms’ technologies and technological specialization of countries in the context of a model of the firm in which there are agency conflicts between shareholders and managers. We show that the allocation of control over firms’ reincorporation decisions determines the corporate governance choice ex ante and the outcome of the competition between legal regimes ex post. When managers have control over reincorporation then competitive deregulation and “runs to the bottom” ensue. When shareholders have partial or full control then there is diversity in governance structures. Runs to the bottom are not necessarily socially undesirable but they have a feedback effect on firms’ choices of technologies that may make the party in control worse off ex ante. We show that it is impossible for any country to achieve social welfare maximization of its existing and new enterprises. With competition between legal regimes, start-up and mature companies incorporate in different jurisdictions even when reincorporation is correctly anticipated.     

Choosing an exchange-rate system

The focus of academic discussions of exchange rate policy has shifted in recent years. The new literature on exchange rate regime choice emphasizes considerations relating to the problems of credibility in exchange rate targeting and the connections between exchange rate regime choices and choices of monetary and fiscal policy. Arguments for exchange rate targeting are reviewed. Under most circumstances and for most countries, a system of freely floating exchange rates is likely to be a better choice than attempting to peg the exchange rate.     

Urban spatial structuring following disasters: empirical findings from location choices of businesses in Adapazari,Turkey

This study argues that ignorance of businesses in disaster management systems from the point of spatial policies leads to deviations from initial recovery goals aiming to create a safer urban environment. Therefore, the paper examines the location choices of businesses in a disaster-stricken case from Turkey through an empirical research conducted after the 1999 Earthquake. In doing so, data were gathered from 232 firms in Adapazari city via a questionnaire to inquire about their location choices before and after the disaster and the reasons behind their strategy. Findings suggest that recovery goals at community level cannot be achieved without referring to the spatial decisions of businesses in hazard-prone areas. With regard to the findings of the study, policy recommendations are developed to guide post-disaster practises from a space-sensitive perspective by focusing on businesses.     

Financial risks,monetary policy in the QE era,and regulation

At the beginning of the present century, the literature on financial integration focused on the benefits of increased integration. In particular, the literature emphasized that a well-integrated financial system allows economic agents to engage in risk sharing while enhancing the smooth transmission of monetary policy. However, the international financial crisis of 2007-08 and the euro area sovereign debt crisis of 2009-15, brought to the fore the flip side of increased financial integration – namely, that higher financial integration among national jurisdictions creates the potential for destabilizing cross-country spillovers of capital flows. The papers in this Special Issue address financial system vulnerabilities in the aftermath of the 2007-08 financial crisis and the 2009-15 euro area crisis. In particular, the papers assess (1) vulnerabilities arising from such factors as the liberalization of financial systems, cross-country contagion, and climate change, and (2) policy responses, including macroprudential supervision and quantitative easing, to financial instabilities.     

Depreciation in the Canadian Airline Industry

This case is designed to help students enhance their analytical skills and link accounting policy choices with corporate strategy. Written initially for MBA students and senior analysts attending executive education sessions, it provides participants with 1) industry background for the Canadian airline sector, and 2) historical and selected financial and non‐financial information from the annual reports and initial public offering documents of three players in this industry. Participants are invited to reflect on the theoretical and practical reasons underlying the choice of a depreciation method by airline companies, to find ways to quantitatively compare companies that use different depreciation methods, and to link these policy choices to possible strategic considerations. This case is based on a unique situation prevailing in 2009 where financial information was available for all three airlines which were using different approaches for aircraft depreciation.     

International compliance with new Basel Accord principles for risk governance

We assess international compliance with the Basel Committee's 2010 guidance on governance of banking organisations. Based on an extensive examination of regulatory documents in selected advanced economies, we find that reform is incomplete in jurisdictions most affected by the financial crisis, and with the largest financial centres. In contrast, other countries less affected by the financial crisis have enacted risk governance reforms as protection against potential future contagion. We provide insights for policy‐makers charged with improving governance at banks, and a richer understanding for international regulators as they revise the guidelines and aim for greater compliance at the national level.     

Goliath Corporation: An instructional case in transfer pricing policy

This case illustrates some of the issues associated with setting firms’ transfer pricing policies. The simulation requires students to assume the roles of top management and divisional management for Goliath Corporation in negotiating transfer prices. The student playing the role of top management first selects a transfer pricing policy from four possible mechanisms: market-based, cost-based, negotiated, and dual-pricing. Given the top manager’s policy choice, divisional managers are then constrained to use that policy as they decide whether to purchase internally or externally based on their respective negotiations. In each negotiation, there is an ex ante best decision for Goliath as a whole. The case is thus useful in demonstrating how managers’ transfer price policy choices can lead to bad sourcing decisions.