Las nuevas normas contables de arrendamientos: Causas y potenciales efectos económicos

Lease accounting has been controversial for decades. The alternative accounting treatments are in between two extreme positions: recognizing assets and liabilities in the balance sheet, or disclosing the information in the notes to financial statements. The standards in place during the last decades establish a mixed model that classifies leases into operating or financial, requiring disclosing information for the former and recognizing assets and liabilities for the latter. However, mainly due to the deficiencies in their practical implementation, in 2006 the IASB and the FASB started a project to change the lease accounting standards. This long and disputed process ended up at the beginning of 2016 with the publication of IFRS 16 and ASU 2016-02. This article aims to explain the causes of this crucial accounting regulatory change in order to help to the understanding of its reasons, as well as its potential economic consequences. This is necessary in order to assess whether this change should be implemented in the Spanish accounting standards.La contabilidad de los arrendamientos es objeto de debate desde hace décadas. Las distintas posiciones se encuentran entre dos extremos: reconocer activos y pasivos en el balance o revelar información en las notas. Las normas vigentes en las últimas décadas establecen un modelo mixto, que obliga a clasificar los arrendamientos entre operativos o financieros, exigiendo para los primeros revelar información y para los segundos reconocer activo y deuda. Pero, fundamentalmente debido a las deficiencias detectadas en su aplicación práctica, en 2006 el IASB y el FASB comenzaron un proyecto conjunto para cambiarlas. El proceso, largo y no exento de polémica, finalizaba con la emisión de sendas nuevas normas a comienzos de 2016 (la NIIF 16 y la ASU 2016-02). El objetivo fundamental de este trabajo es explicar este proceso para ayudar a comprender las razones de este importante cambio normativo, así como sus potenciales efectos económicos. Es indudable que esto es necesario para evaluar la idoneidad de implementar este cambio en el modelo contable español

Three essays on the effects of foreign direct investment on the host-country companies: An analysis in the private setting

This thesis investigates how the presence of foreign controlling shareholders relates to the performance and financial reporting quality of private subsidiaries. We analyze unique, hand-collected data consisting of a sample of more than 2,000 private Spanish companies controlled by either a local or a foreign group during the period 1997-2013. Overall, results suggest a negative effect of foreign direct investment on the host-country companies. In particular, foreign ownership is associated with a sales advantage, but the higher personnel costs make foreign group subsidiaries less profitable than their locally-owned counterparts. As far as accounting quality is concerned, foreign-owned companies are also inferior to those owned by local groups, since we find a higher prevalence of earnings management and a higher likelihood of receiving modified audit reports for lack of transparency in subsidiaries of foreign groups. In sum, foreign control does not enhance firm profitability nor financial reporting quality, but fosters opacity.Esta tesis analiza cómo la propiedad extranjera afecta al rendimiento y calidad de la información financiera de subsidiarias españolas no cotizadas durante el período 1997-2013. Los resultados sugieren un efecto negativo de la inversión directa extranjera en las empresas del país receptor. En particular, la propiedad extranjera está asociada con una ventaja en términos de ventas, pero los gastos de personal más altos hacen que las subsidiarias de grupos extranjeros sean menos rentables que sus homólogas de grupos locales. Respecto a la calidad de las cifras contables, las subsidiarias de grupos extranjeros también son inferiores a las controladas por grupos locales ya que encontramos mayor prevalencia del earnings management y mayor probabilidad de recibir informes de auditoría no limpios por falta de transparencia en las subsidiarias de grupos extranjeros. En conclusión, el control extranjero no mejora ni la rentabilidad ni la calidad de la información, sin embargo fomenta la opacidad

Private Information and Bank-Loan Pricing:The Effect of Upcoming Corporate Spinoffs

Corporate spinoffs are important events that are accompanied by valuation and credit-risk implications for the parent firm. Among other benefits, spinoffs can improve corporate focus and enhance valuation transparency. In the debt-contracting context, however, spinoffs can also be associated with negative outcomes for the divesting firms. We examine whether banks, due to their timely access to material private information, are able to ascertain the likelihood and the implications of impending spinoffs for the parent firm before a formal public announcement of the spinoff. Our empirical analyses indicate that, in the 365-day pre-spinoff announcement period, banks charge incrementally higher (lower) spreads to borrowers with increased (decreased) post-spinoff riskiness relative to non-divesting firms. This suggests that, while lenders recognize the value- and transparency-enhancing effects of spinoffs, they are also able to foresee potentially negative implications of these divestitures. Cross-sectional analyses indicate that banks charge incrementally lower loan spreads if spinoffs result in high-risk borrowers having either higher reporting quality or lower reporting or operational complexity. These results suggest that the post-spinoff increase in riskiness is compensated by the divestiture benefits typically associated with spinoffs. Similarly, high-risk borrowers incur larger spreads if they do not undergo “focus-increasing” spinoffs. Overall, our findings suggest that banks are able to ex-ante determine the implications of important corporate events such as spinoffs

Control extranjero versus local de subsidiarias privadas españolas y opiniones de auditoria modificadas

This paper studies the relation between foreign control and the likelihood of receiving modified audit opinions (MAOs) by private subsidiaries. To further analyze this relation, we partition MAOs based on their underlying reason: GAAP violations; opacity; and uncertainties, including going concern (GCUs) and other (non-GCUs). We observe a significantly greater incidence of MAOs in subsidiaries owned by foreign groups than in those with a local parent company. This result is mainly driven by opacity related MAOs. The evidence of a higher incidence of GAAP violation and non-GCU related MAOs in foreign owned subsidiaries is inconclusive; and MAOs related to GCUs are significantly less frequent in subsidiaries of foreign groups. In contrast to the results found in the public setting, our findings suggest that foreign control in the private setting is associated with more opaque companies. This study contributes to a better understanding of the effects of foreign direct investment (FDI) in the host-country, at the company level.En este trabajo se estudia la relación entre el control extranjero y la probabilidad de recibir opiniones de auditoria modificadas (OAMs) en una muestra de subsidiarias españolas no cotizadas. Además, para analizar con mayor detalle esta relación, clasificamos las OAMs en cuatro tipos, en función de la razón que subyace a la modificación: violación de principios y normas contables; opacidad; incertidumbres por gestión continuada (GCUs); y otras incertidumbres (non-GCUs). Se observa una incidencia significativamente mayor de OAMs en subsidiarias de grupos extranjeros que en las de grupos locales. Este resultado se deriva fundamentalmente de las modificaciones de opinión relacionadas con la falta de transparencia (opacidad). La evidencia de una mayor incidencia de modificaciones por violación de principios contables e incertidumbres distintas de la gestión continuada en subsidiarias con control extranjero es poco concluyente; y las modificaciones por gestión continuada son significativamente menos frecuentes en las subsidiarias de grupos extranjeros. A diferencia de los resultados en el contexto de la empresa cotizada, nuestros resultados sugieren que el control extranjero en la empresa no cotizada está asociado a empresas más opacas. Este trabajo contribuye a una mayor comprensión de los efectos de la inversión directa extranjera (FDI) en las empresas del país receptor

Foreign control and modified audit opinions

This paper studies the relation between foreign control and the likelihood of receiving modified audit opinions (MAOs) by private subsidiaries. To further analyze this relation, we partition MAOs based on their underlying reason: GAAP violations; opacity; and uncertainties, including going concern (GCUs) and other (non-GCUs). We observe a significantly greater incidence of MAOs in subsidiaries owned by foreign groups than in those with a local parent company. This result is mainly driven by opacity related MAOs. The evidence of a higher incidence of GAAP violation and non-GCU related MAOs in foreign owned subsidiaries is inconclusive; and MAOs related to GCUs are significantly less frequent in subsidiaries of foreign groups. In contrast to the results found in the public setting, our findings suggest that foreign control in the private setting is associated with more opaque companies. This study contributes to a better understanding of the effects of foreign direct investment (FDI) in the host-country, at the company level.En este trabajo se estudia la relación entre el control extranjero y la probabilidad de recibir opiniones de auditoria modificadas (OAMs) en una muestra de subsidiarias españolas no cotizadas. Además, para analizar con mayor detalle esta relación, clasificamos las OAMs en cuatro tipos, en función de la razón que subyace a la modificación: violación de principios y normas contables; opacidad; incertidumbres por gestión continuada (GCUs); y otras incertidumbres (non-GCUs). Se observa una incidencia significativamente mayor de OAMs en subsidiarias de grupos extranjeros que en las de grupos locales. Este resultado se deriva fundamentalmente de las modificaciones de opinión relacionadas con la falta de transparencia (opacidad). La evidencia de una mayor incidencia de modificaciones por violación de principios contables e incertidumbres distintas de la gestión continuada en subsidiarias con control extranjero es poco concluyente; y las modificaciones por gestión continuada son significativamente menos frecuentes en las subsidiarias de grupos extranjeros. A diferencia de los resultados en el contexto de la empresa cotizada, nuestros resultados sugieren que el control extranjero en la empresa no cotizada está asociado a empresas más opacas. Este trabajo contribuye a una mayor comprensión de los efectos de la inversión directa extranjera (FDI) en las empresas del país receptor

The new accounting standards for leases: causes and potencial economic effects

Lease accounting has been controversiAL for decades. The alternative accounting treatments are in between two extreme positions: recognizing assets and liabilities in the balance sheet, or disclosing the information in the notes to financial statements. The standards in place during the last decades establish a mix model that classifies leases into operating or financial, requiring disclosing information for the former and recognizing assest and liabilites for the latter. However, mainly due to the deficiences in their practical implementation, in 2006 the IASB and the FASB started a beginning of 2016 with the publication of IFRS 16 and ASU 2016-02. This article aims to explain the causes of this crucial accounting regulatory change in order to help the understanding of its reasons, as well as its potential economic consequences. This is necessary in order to assess wheterthis change should be implemented in Spanish accounting standards.La contabilidad de los arrendamientos es objeto de debate desde hace décadas. Las distintas posiciones se encuentran entre dos extremos: reconocer activos y pasivos en el balance o revelar información en las notas. Las normas vigentes en las últimas décadas establecen un modelo mixto, que obliga a clasificar los arrendamientos entre operativos o financieros, exigiendo para los primeros revelar información y para los segundos reconocer activo y deuda. Pero, fundamentalmente debido a las deficiencias detectadas en su aplicación práctica, en 2006 en el IASB y en el FASB comenzaron un proyecto conjunto para cambiarlas. El proceso, largo y no exento de polémica, finalizaba con la emisión de sendas nuevas normas a comienzos de 2016 (la NIIF 16 la ASU 2016-02). El objetivo fundamental de este trabajo es explicar proceso para ayudar a comprender las razones de este importante cambio normativo, así como sus potenciales efectos económicos. Es indudable que esto es necesario para evaluar la idoneidad de implementar este cambio en el modelo contable español

Private Information and Bank-Loan Pricing: The Effect of Upcoming Corporate Spinoffs

Corporate spinoffs are important events that are accompanied by valuation and credit-risk implications for the parent firm. Among other benefits, spinoffs can improve corporate focus and enhance valuation transparency. In the debt-contracting context, however, spinoffs can also be associated with negative outcomes for the divesting firms. We examine whether banks, due to their timely access to material private information, are able to ascertain the likelihood and the implications of impending spinoffs for the parent firm before a formal public announcement of the spinoff. Our empirical analyses indicate that, in the 365-day pre-spinoff announcement period, banks charge incrementally higher (lower) spreads to borrowers with increased (decreased) post-spinoff riskiness relative to non-divesting firms. This suggests that, while lenders recognize the value- and transparency-enhancing effects of spinoffs, they are also able to foresee potentially negative implications of these divestitures. Cross-sectional analyses indicate that banks charge incrementally lower loan spreads if spinoffs result in high-risk borrowers having either higher reporting quality or lower reporting or operational complexity. These results suggest that the post-spinoff increase in riskiness is compensated by the divestiture benefits typically associated with spinoffs. Similarly, high-risk borrowers incur larger spreads if they do not undergo “focus-increasing” spinoffs. Overall, our findings suggest that banks are able to ex-ante determine the implications of important corporate events such as spinoffs

Opinion-shopping: firm versus partner-level evidence

Employing Lennox’s (2000) methodology on a uniquely long time series of Spanish companies’ data, we find evidence of successful audit opinion-shopping through the firm switching decision. However, in contrast to Chen et al. (2016) in the Chinese setting, we find no evidence of successful opinion-shopping at the partner level. This supports the thesis that the audit market characteristics that are key to promote or deter opinion shopping might differ at the firm and partner level within a country, with consequences for audit quality. In addition, we provide evidence on the strategies that companies use to secure more favourable opinions. The results suggest that companies may prefer to opinion shop at the partner level, which is consistent with the argument that the costs and benefits associated with opinion-shopping are different at these two levels, and lead to different outcomes.We gratefully acknowledge helpful comments and suggestions from the editor (Edward Lee) and two anonymous reviewers, as well as from seminar participants at Universidad Autónoma de Madrid, University of Navarra, University of Murcia, Zurich University, the XXIII Finance Forum, the 39th Annual Congress of the European Accounting Association, and the 2016 International Conference on Business Information. An early draft of the paper won the award for ‘Best Paper on Regulation’ at the XXIII Finance Forum. This award is sponsored by the Spanish Securities and Exchange Commission (CNMV). This award implied presenting the paper at the premises of CNMV in Madrid and providing a summary of the paper for their March 2016 bulletin. The paper also was awarded with the best paper award of the Accounting and Finance section at the 2016 BAI Conference. A prior version of the paper focused on auditor switching was presented at the VIII Workshop on Empirical Research in Financial Accounting, and the 2012 Annual Meeting of the American Accounting Association We acknowledge financial contribution from the AECA Chair in Accounting and Auditing (2018-2019), the Spanish Ministry of Science & Innovation (ECO2016-77579 and PID2019-111143GB-C33), the Cátedra UAM-ICJCE/AT1, and Universitat Jaume I (research project funding 09I340/P11B2009-05)