Joint Tests of Signaling and Income Smoothing through Bank Loan Loss Provisions*

We examine whether and how managers use loan loss provisions to smooth income and to signal their private information about their banks' future prospects. Our paper highlights that the use of the loan loss provision to accomplish more than one objective gives rise to situation‐specific costs and benefits of manipulating the provision up or down. We hypothesize that relatively undervalued banks have greater incentives to signal their future prospects than fairly valued banks and that banks' incentives to smooth intensify as premanaged earnings deviate from norms. On the basis of these conjectures, we categorize sample banks into subgroups that are predicted to use loan loss provisions consistent with their situation‐specific incentives. This allows us to refine the research methods used in prior research to examine heterogeneous incentives. While we find evidence consistent with the use of loan loss provisions to smooth earnings, particularly when premanaged earnings are extreme, our evidence on signaling is less consistent. In particular, our signaling results depend on the introduction of an interaction term that has not been used in prior research. We also document that the intensity of smoothing (signaling) is not uniform across the sample. In addition to being a function of the incentive to smooth (signal), it also is a function of the incentive to signal (smooth).     

Determinants of tax evasion: A cross-country investigation

The purpose of this study is to expand on the work of Riahi-Belkaoiu [Riahi-Belkaoiu, A. (2004). Relationship between tax compliance internationally and selected determinants of tax morale. Journal of International Accounting, Auditing and Taxation, 13, 135-143] and systematically investigate, on a cross-country basis, many of the key determinants of tax evasion identified by Jackson and Milliron [Jackson, B. R., & Milliron, V. C. (1986). Tax compliance research: findings, problems and prospects. Journal of Accounting Literature, 5, 125-165]. Based on data for 45 countries, the results of the OLS regression analysis show that non-economic determinants have the strongest impact on tax evasion. Specifically, complexity is the most important determinant of tax evasion. Other important determinants of tax evasion are education, income source, fairness and tax morale. Overall, the regression results indicate that the lower the level of complexity and the higher the level of general education, services income source, fairness and tax morale, the lower is the level of tax evasion across countries. These findings remain robust to a broad range of cross-country control variables, an alternative tax evasion measure and various interactions.     

The Treatment of Non-Recurring Items in the Income Statement and their Consistency with FASB Concept Statements

This study provides evidence on the consistency of Accounting Principles Board Statement No. 30 (APB, 1973) classification criteria with the objectives of the Financial Accounting Standards Board's Concept Statements Nos 1 and 2 (FASB, 1978, 1980). It is hypothesized that the current APB 30 requirement to classify items of a non-recurring nature in the operating section of the income statement decreases the predictive ability of income before extraordinary items. A random sample of 50 firms with non-recurring adjustments to income, which were included in the operating section of the income statement, was selected from Standard and Poor's Corporation Records. Naive models were used to generate earnings per share forecasts for the year in which the adjustment to income occurred, the prior year and subsequent year.
The results indicate a statistically significant decrease in the predictive ability of earnings per share before extraordinary items associated with the year that the adjustment occurred and a significant increase in the variability of earnings per share. Also, differences in predictive ability were noted between small and large firms and firms with positive and negative adjustments to income.
The results of this study also imply that the managers of most firms with negative adjustments to income are not using the adjustments to smooth income for either the purpose of decreasing the variability of earnings or increasing predictability. The results are more consistent with the 'big bath' theory. These conclusions appear to be more relevant for smaller firms than larger firms.     

When do they leave? The dynamics of living in low-income neighbourhoods

We use longitudinal tax data to explore several undocumented aspects of residential spells in low-income neighbourhoods. Although new spells generally last much longer than spells in the low-income state, both types of spells exhibit negative duration dependence. While factors such as family type, age, and local unemployment rates play a considerable role in the length of both types of spells, the magnitude of these roles is quite different. These differences suggest that in contrast to the low-income state, the dynamics of low-income neighbourhood spells are largely shaped by non-economic factors.     

Neighbors’ income distribution: economic segregation and mixing in US urban neighborhoods

The paper describes within-neighborhood economic segregation in US metropolitan areas in 1985 and 1993. It uses the neighborhood clusters of the American housing survey, standardized by metropolitan area income and household size, to explore income distribution within neighborhoods at a scale much smaller than the census tract (a representative sample of households or ‘kernels’ and their 10 closest neighbors). Joint and conditional distributions portray neighbors’ characteristics conditional on the kernel’s housing tenure, race, and income. The paper documents both significant income mixing in the majority of US urban micro neighborhoods and the extent of income mixing within neighborhoods of concentrated poverty.     

Estimation of income elasticities from Lorenz concentration curves: application to Canadian micro‐data

This study uses a method of estimating income elasticities of major Canadian expenditure groups. The technique is based on the implicit Engel functions derived from the Lorenz curve of permanent income and concentration curves of group‐specific expenditures. The methodology is applied to The 1996 Canadian Family Expenditure Survey. Results indicate that income elasticities for the majority of the broad expenditure categories considered in the study are inelastic and they increase monotonically with income.     

Financial Reporting and the Austrian Theory of Entrepreneurship

The Austrian School of economics, with its emphasis on the market as a process and the role of the entrepreneur as the catalyst of that process, sheds new light on the social role of accounting. This paper examines the implications of the School's teachings to financial reporting, including its insistence on relegating accounting to the role of retrospective economic calculation, and the use of current cash equivalents for asset valuation. The Austrian School's replacement of neo-classical general equilibrium theory with a dynamic model of the market process offers accounting researchers some relief of having to cope with the real world of error, discovery, and disequilibrium.     

Assessing policies to equalize opportunity using an equilibrium model of educational and occupational choices

The inter-generational correlation of education in the U.S. is tremendous. For instance, in PSID data from 1990, young males with college-educated parents had a 70% chance of attending college. But those with high school drop-out parents had only a 15% chance. In this paper, we analyze the impact of college attendance bonus schemes designed to increase college attendance rates (and PV of lifetime income) of youth from disadvantaged backgrounds. Of course, policies that increase the supply of skilled labor may reduce the college wage premium (see Heckman et al. [Heckman, James, Lochner, Lance and Taber, Christopher, Explaining rising wage inequality: explorations with a dynamic equilibrium model of labor earnings with heterogeneous agents, Review of Economic Dynamics, 1 (1998a), 1–58; Heckman, James, Lochner, Lance and Taber, Christopher, General-equilibrium treatment effects: a study of tuition policy, American Economic Review, 88:2 (1998b), 381–386]). This may have the unintended consequence of wiping out most of the gains to the targeted groups. The strength of such equilibrium effects on wages depends on the substitutability between different types of labor. Thus, it is important to evaluate education subsidies within an equilibrium framework that allows for flexible patterns of substitution across factor inputs. This is exactly what we do here, using an overlapping generations equilibrium model of the U.S. labor market fit to PSID data from 1968 to 1996. The model allows for imperfect substitution among types of labor differentiated by education, gender, age and ten (1-digit level) occupations — a much finer differentiation than has been considered in prior work.We find that very large college attendance bonuses are necessary to equate college attendance rates between youth whose parents had only high school degrees or were high school dropouts and youth whose parents attended at least some college. The size of these bonuses far exceeds any reasonable measure of college costs; suggesting the “costs” the bonuses overcome are primarily psychic or effort costs. For example, youth from disadvantaged backgrounds may be poorly prepared for college. This suggests that bonuses targeted at college age youth are probably a very inefficient way to reduce inequality. Earlier intervention is likely called for.     

国际外包与我国城乡收入差距关系的实证研究:1981-2007

基于内生经济增长理论的核心观点,在专用要素模型的分析框架下,笔者将国际外包的经济效应分解为产出技术效应和成本技术效应,对外包与我国城乡收入差距的关系进行了实证研究。结果显示,在当前城乡人力资本水平存在明显差异的情况下,收入差距与中间品贸易存在着长期稳定的均衡关系,而中间品贸易进口和贸易结构的升级则是导致差距扩大的重要原因。因而,缩小城乡人力资本水平的差异应该成为解决城乡收入差距问题的长期着力点。