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Accounting Standards, Information Flow, and Firm Investment Behavior

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  • Jason G. Cummins
  • Trevor S. Harris
  • Kevin A. Hassett

Abstract

We present a description of two different accounting regimes that govern reporting practice in most developed countries. 'One-book' countries, e.g. Germany, use their tax books as the basis for financial reporting and 'two-book' countries, e.g. the United States, keep the books largely separate. We derive a structural model and formalize a testable implication of our discussion: firms in one-book countries may be reluctant to claim some tax benefits if reductions in taxable income may be misinterpreted by financial market participants as signals of lower profitability. Econometric estimates suggest that accounting regime differences play an important role in describing domestic investment patterns both within and across countries.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4685.

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Date of creation: Mar 1994
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Publication status: published as The Effects of Taxation on Multinational Corporations, eds. M. Feldstein, J. Hines, R.G. Hubbard, University of Chicago Press, 1995.
Handle: RePEc:nbr:nberwo:4685

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  1. R. Glenn Hubbard & Anil Kashyap, 1990. "Internal net worth and the investment process: an application to U.S. agriculture," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 124, Board of Governors of the Federal Reserve System (U.S.).
  2. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-40, September.
  3. Abel, Andrew B., 1980. "Empirical investment equations : An integrative framework," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 12(1), pages 39-91, January.
  4. Blundell, Richard & Bond, Stephen & Devereux, Michael & Schiantarelli, Fabio, 1992. "Investment and Tobin's Q: Evidence from company panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 51(1-2), pages 233-257.
  5. Michael A. Salinger & Lawrence H. Summers, 1984. "Tax Reform and Corporate Investment: A Microeconometric Simulation Study," NBER Working Papers 0757, National Bureau of Economic Research, Inc.
  6. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(1), pages 33-60, February.
  7. Alan J. Auerbach, 1982. "The New Economics of Accelerated Depreciation," NBER Working Papers 0848, National Bureau of Economic Research, Inc.
  8. Oliner, Stephen & Rudebusch, Glenn & Sichel, Daniel, 1995. "New and Old Models of Business Investment: A Comparison of Forecasting Performance," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(3), pages 806-26, August.
  9. R. Glenn Hubbard & Anil K Kashyap & Toni M. Whited, 1993. "Internal Finance and Firm Investment," NBER Working Papers 4392, National Bureau of Economic Research, Inc.
  10. John B. Shoven & Jeremy I. Bulow, 1975. "Inflation Accounting and Nonfinancial Corporate Profits: Physical Assets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(3), pages 557-612.
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Cited by:
  1. Hovick Shahnazarian, 2009. "Does Tax Debt Capacity Matttter?," Finnish Economic Papers, Finnish Economic Association, Finnish Economic Association, vol. 22(1), pages 21-30, Spring.
  2. Altshuler, Rosanne & Cummins, Jason, 1997. "Tax Policy and the Dynamic Demand for Domestic and Foreign Capital by Multinational Corporations," Working Papers, C.V. Starr Center for Applied Economics, New York University 97-31, C.V. Starr Center for Applied Economics, New York University.
  3. Jason Cummins & R. Glenn Hubbard, 1995. "The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 123-152 National Bureau of Economic Research, Inc.
  4. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1995. "Tax Reforms and Investment: A Cross-Country Comparison," NBER Working Papers 5232, National Bureau of Economic Research, Inc.
  5. Alvarez JR, Luis & Kanniainen, Vesa & Södersten, Jan, 2000. "Why is the Corporation Tax Not Neutral? Anticipated Tax Reform, Investment Spurts and Corporate Borrowing," Working Paper Series, Uppsala University, Department of Economics 2000:4, Uppsala University, Department of Economics.
  6. Sorensen, Peter Birch, 1995. "Changing Views of the Corporate Income Tax," National Tax Journal, National Tax Association, vol. 48(2), pages 279-94, June.
  7. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 50(2-3), pages 127-178, December.
  8. Hassett, Kevin A & Hubbard, R Glenn, 1998. "Are Investment Incentives Blunted by Changes in Prices of Capital Goods?," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 1(1), pages 103-25, October.
  9. James R. Hines, Jr., 1996. "Tax Policy and the Activities of Multinational Corporations," NBER Working Papers 5589, National Bureau of Economic Research, Inc.

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