The Adaptation of German Accounting Rules to IFRS: A Legislative Balancing Act

The accounting strategy of the EU Commission for the last ten years, which reached one of its goals with the Regulation on IAS, is challenging all EU Member States. This article gives an analytical insight into the way the German legislator has confronted this challenge. It explains the statutory changes introduced to adapt the accounting regime in Germany, against the background of arguments for reform and proposals which have been put forward in the German accounting literature and by influential interest groups. The major characteristics of the government's accounting strategy are analysed: an increasing focus on the macroeconomic benefits of adequate accounting regulations, a perception of accounting as a material part of the corporate governance regime, greater weight given to the notion of public interest and the information function of accounting, a focus on consolidated accounts for the revision of existing rules, and, at the same time, considerable reluctance to change any recognition and measurement rules for individual entity accounts. In general the accounting reform strategy of the German government can be characterized as being slow, conservative and reactive, following a marginal step-by-step approach.     

Nimmt der Länderfinanzausgleich den Anreiz zum Steuervollzug?

The German Länder are increasingly coming under criticism for insufficiently fulfilling their federal duty to enforce tax. A reason suggested for this is the lack of financial incentives: the Länder have to bear the staffing costs, but as a result of fiscal equalisation among Germany’s federal states, they are only allowed to keep a fraction of the additional income collected. The author shows that this is a myth: additional tax inspectors would still bring in good returns for the Länder. Moreover, it is the financially stronger states that are allowed to keep a larger share of their tax income, but which carry out fewer inspections. Thus, higher financial incentives are linked with poorer tax enforcement.     

The Role of Industry Effects in Simultaneous Reversal and Momentum Patterns in One-Month Stock Returns

When stocks are ranked by returns in one month, the portfolio of loser stocks tends to outperform the portfolio of winner stocks in the subsequent month. Yet industry portfolios tend to display momentum. We develop a model of information diffusion among agents with constrained information processing ability that reconciles these well-documented phenomena. We test whether this model or the overreaction hypothesis is consistent with the data. Additionally, a trading strategy based on the model outperforms strategies based on overreaction and on industry momentum. The strategy produces abnormal returns while controlling for market–risk and the size, book value, January, momentum, and liquidity effects.     

Regulating a monopolist with limited funds

Summary. We consider the problem of regulating a monopolist with unknown costs when the regulator has limited funds. The optimal regulatory mechanism satisfies four properties. The first property is bunching at the top, that is the more efficient types produce the same quantity irrespective of their costs. The second property is separability of less efficient types. The third property is full bunching of types when the available fund is small enough. The fourth property of the mechanism is that it is a third best one, that is, the output under this regulatory mechanism is strictly lower than the second best output for any given type.Received: 14 June 2004, Revised: 31 August 2004, JEL Classification Numbers: D82, H42, L51. Correspondence to: Manipushpak MitraThe authors would like to thank Georg Nöldeke for encouraging this work. The authors are also thankful to Debajyoti Chakrabarty, Sougata Poddar and one anonymous referee for helpful comments and important suggestions. The authors gratefully acknowledge the financial support from the Deutsche Forschungsgemeinschaft Graduiertenkolleg (DFG) 629 at the University of Bonn and from the Brussels Capital Region. The authors would like to thank the seminar participants at the EEA Conference 2003 (Stockholm), at the Indian Statistical Institute (New Delhi and Kolkata), at the Jadavpur University (Kolkata) and at the Centre for Studies in Social Sciences (Kolkata). The authors are solely responsible for the errors that may remain. An earlier version of this paper was called Financing infrastructure under budget constraints. Since the applicability of the problem developed in the earlier version is not limited to infrastucture, in this vers ion we have changed the name and content to incorporate this generality.     

Renting versus Owning and the Role of Human Capital: Evidence from Germany

In a world with complete markets, the decision whether to rent or buy a home is not influenced by risks related to human capital. If markets are incomplete and have frictions, however, this may change. Renting should become more likely the more mobile a household has to be and the more income risk can be diversified. Using household panel data from Germany, we test both predictions. We find that mobility requirements have a positive effect on the probability of renting. This effect is robust even after controlling for state dependence, unobserved heterogeneity and other factors known to influence the tenure mode choice. Our data, however, does not support the hypothesis that the potential to diversify net income risk when renting affects the tenure mode choice.     

Loan Subsidy Valuation: An Alternative Approach

In a recent paper, Jennergren analyzed four loan subsidy valuation methods suggested in authoritative textbooks. He showed that the first three can be derived from a unique formula whose value depends on the nonsubsidized loan amount that is assumed to be replaced by the subsidized loan. When the WACC method is used, this debt replacement must implicitly take into account the target debt-to-value ratio set by the firm. In this article, we suggest an alternative approach that allows us to clearly incorporate the corresponding debt constraint and to determine the resulting adjustment to be made. This adjustment appears to be different from that recommended by Jennergren. More generally, we suggest an alternative view of the consistency of the methods.     

Fixing feedback revision rules in online markets

Feedback withdrawal mechanisms in online markets aim to facilitate the resolution of conflicts during transactions. Yet, frequently used online feedback withdrawal rules are flawed and may backfire by inviting strategic transaction and feedback behavior. Our laboratory experiment shows how a small change in the design of feedback withdrawal rules, allowing unilateral rather than mutual withdrawal, can both reduce incentives for strategic gaming and improve coordination of expectations. This leads to less trading risk, more cooperation, and higher market efficiency.     

Unravelling the JPMorgan spoofing case using particle physics visualization methods

On 29 September 2020, JPMorgan was ordered to pay a settlement of $920.2 million for spoofing the metals and Treasury futures markets from 2008 to 2016. We examine these cases using a visualization method developed in particle physics (CERN) and the messages that the exchange receives about market activity rather than time-based snapshots. This approach allows to examine multiple indicators related to market manipulation and complement existing research methods, thereby enhancing the identification and understanding of, as well as the motivation for, market manipulation. In the JPMorgan cases, we offer an alternative motivation for spoofing than moving the price.