The Tone from Above:The Effect of Communicating a Supportive Regulatory Strategy on Reporting Quality

In collaboration with the Authority for the Financial Markets in the Netherlands, we manipulate the content of official letters that instruct financial intermediaries to submit a mandatory self-assessment. As part of the Registered Report Process, we submitted our hypotheses, experimental procedure, and planned statistical analyses before data collection. We predicted that a request indicating a supportive regulatory attitude has a positive effect on reporting quality on average. We also predicted this effect to be stronger for small firms and for firms with a long-term orientation, and to become negative for firms with a short-term orientation. Planned analyses show that a supportive letter reduced reporting quality unless firms had a long-term orientation, supporting the moderating influence of time horizon, but providing no support for the expected average effect or for moderation by firm size

On the effects of the degree of discretion in reporting managerial performance

We consider a principal-agent setting in which a manager’s compensation depends on a noisy performance signal, and the manager is granted the right to choose an (accounting) method to determine the value of the performance signal. We study the effect of the degree of such reporting discretion, measured by the number of acceptable methods, on the optimal contract, the expected cost of compensation, and the manager’s expected utility. We find that a minimal degree of discretion may be necessary for successful contracting. We also find that while an increase in reporting discretion never harms the manager, the effect on the expected cost of compensation is more subtle. We identify three main effects of increased reporting discretion and characterize the conditions under which the aggregate of these three effects will lead to a higher or lower cost of compensation. Finally, we find that when reporting discretion induces costly effort on the part of the manager, the optimal degree of discretion can be higher than when it is costless

21st century scandals: towards a risk approach to financial reporting scandals

Financial reporting scandals in the 21st century have been followed by many changes in the regulatory framework of financial reporting. While it is natural to ask for research evidence on the effectiveness of these changes in preventing new scandals, we discuss some of the difficulties in conducting this type of research as well as limitations of commonly used approaches. We argue as the central point of this paper that both research and regulation should be based on an explicit acceptance of a permanent risk of financial reporting failure, rather than working on the assumption that this risk can and should be ever further reduced. Acceptance of this point of view can turn what is currently a scattering of unconnected research efforts into a coherent research agenda with potentially high relevance. Facing the existence of permanent financial reporting risk leads to a series of interconnected questions including the measurement of this risk, both actual and as perceived by various stakeholder groups, communication and education concerning these risks, and mechanisms to share or transfer these risks

Investment Decisions and Depreciation Choices under a Discretionary Tax Depreciation Rule

Prior studies have shown limited impact of the US bonus depreciation rules on firm investments during economic downturns. In this article we study the effects of a set of more flexible rules – discretionary tax depreciation (DTD) – introduced in the Netherlands during the 2009–2011 economic crisis. Our simulation results show DTD, which allows firms to accelerate and also to postpone depreciation, to be much more effective than bonus depreciation in reducing the expected value of tax payments, especially in crisis periods. Using a sample of 325 clients of a single office of a Dutch accounting firm, we show that DTD has led to higher investments in assets qualifying for discretionary depreciation for firms that faced the highest marginal tax rate. For other firms, the additional investments crowd out investments in assets that do not qualify for DTD. Our analysis on the actual depreciation choices reveals that firms postpone depreciation when facing losses or loss carry forwards, or to smooth taxable income under the progressive tax system. Our results suggest that a fiscal policy that permits firms to postpone depreciation, as well as to accelerate, may stimulate investment

Tax and tariff planning through transfer prices: The role of the head-office and business unit

We study the roles of the head office (HO) and the business units (BUs) of a multinational corporation (MNC) in reducing income tax and tariff payments through internal transfer prices in international trades. Using confidential transfer price data of a large MNC, we analyze how the different elements of internal transfer prices set by the HO and BUs vary differently from external prices with income tax rates, tariff rates, and the tradeoff between the two. Absent severe agency conflicts, we find that the BUs contribute more to tax planning than the HO, despite that explicit incentives to do so are not included in the compensation schemes. The roles of the HO and BUs vary with product market competition, the risk of conflicts with tax and customs authorities, and agency problems within the firm. Moreover, we provide evidence of strategic trade cost allocations among BUs to reduce income taxes

Distributed coding of 3D video sources

Multimedia communication over wireless networks has generated a lot of research interests in the last years. Limited network bandwidth and the requirement of real-time playback on one hand, and severe impairments of wireless links on the other represent the main challenge. The additional issue has to do with the time-varying nature of wireless links and network heterogeneity, which make the channels between the sender and the clients extremely diverse in their available bandwidths and packet loss ratios. These diverse transmission conditions and bandwidth scarcity require an efficient scalable multimedia compression. Therefore, a robust scalable video coder is needed. Although standard video coders (e.g., H.264) can offer high coding efficiency in the scalable mode, they are very sensitive to packet loss, which results in error propagation. Motivated by its potential applications in distributed sensor networks, video coding, and compressing multi-spectral imagery, there has been a flurry of recent research activities on distributed source coding. Distributed video coding (DVC) has been proposed as a promising new technique because it adopts a completely different coding concept respect to conventional codec shifting the complexity to decoder who has the task to exploit - partly or wholly - the source statistics to achieve efficient compression. This change of paradigm also moves the encoder-decoder complexity balance, allowing the provision of efficient compression solutions with simple encoders and complex decoders. This new coding paradigm is particularly suitable for emerging applications such as wireless video cameras and wireless low-power surveillance networks, disposable video cameras, certain medical applications, sensor networks, multiview image acquisition, networked camcorders, etc., i.e. all those devices that require low-energy or low-power consumption. As mentioned above, Distributed Video Coding is a new video coding approach basedon two major Information Theory results: the Slepian-Wolf and Wyner-Ziv theorems. The Slepian-Wolf theorem and the Wyner-Ziv theorem state that it is possible to separately encode and jointly decode two different sources obtaining a perfect reconstruction at the decoder. The compression efficiency is comparable to conventional predictive coding systems. Although the theoretical foundations of distributed video coding have been established in the 1970s, the design of practical DVC schemes has been proposed only in recent years. A major reason behind these latest developments is related to the evolution of channel coding, in particular Turbo and Low-Density Parity-Check (LDPC) coding, which allow to build the efficient channel codes necessary for DVC. DVC approach can be very interesting when dealing with 3D video source both for stereoscopic video sequence and multi-view video sequence because it allows to design a simple encoder shifting all the computational complexity to the decoder. In this way, multiple cameras do not need to communicate because respect to conventional codec where inter-view and intra-view prediction is accomplished at the encoder, here inter-view and intra-view data are exchanged at the decoder. When dealing with stereoscopic sequences, it is important to take into account all the possible artifacts that corrupt the coding phase. At this aim, an investigation on stereoscopic artifacts and video quality of a 3D distributed video coding system is carried out in this thesis. DVC video quality is estimated by means of subjective and objective evaluations. Then two different techniques for joint source-channel coding in distributed environments are introduced. The first is strictly related on distributed 3D video coding and it is based on turbo code. The second approach considers ad-hoc network with mobile and distributed nodes that acquire multimedia contents and exploit a joint source-channel coding system based on LT code for channel protection and information relaying. Then, a multi-view distributed video coding system based on Zernike moments is analyzed. Specifically a new fusion technique between temporal and spatial side information in Zernike Moments domain is proposed. The main goal of our work is to generate at the decoder the side information that optimally blends temporal and interview data. Multi-view distributed coding performance strongly depends on the side information quality built atthe decoder. At this aim for improving its quality a spatial view compensation/prediction in Zernike moments domain is applied. Spatial and temporal motion activity have been fused together to obtain the overall side-information. The proposed method will be evaluated by rate-distortion performances for different inter-view and temporal estimation quality conditions. Finally, image retrieval techniques in multimedia database are reported. Two methods based on Zernike moments and Laguerre-Gauss Transform are proposed and compared with the state of ar

Industry Self-regulation Under Government Intervention

OBJECTIVE: Industry actors (organizations, associations) can influence the way in which firms comply with regulations. This study examines how this influence process is affected by government intervention. METHODS: Using official, anonymized data from the entire industry of financial intermediation in the Netherlands (N = 8655 firms), we examine how firms’ affiliations with industry actors relate to (1) voluntary actions aligned with improving regulatory compliance (e.g., requesting audits, attending workshops), and (2) law violations. Industry actors are distinguished between trade associations and the industry’s self-regulatory organization (SRO), which is subject to more government intervention. The analysis employs Poisson regressions to explain count variables, and bootstrapping to assess indirect associations. A series of robustness tests focus on relevant sub-samples, employ exact matching to address possible self-selection, and incorporate lagged dependent variables. RESULTS: The association between affiliations with industry actors and law violations is negative and significant. This association is more indirect for trade associations than for the SRO (i.e., it is more strongly mediated by the voluntary actions firms take and which help to improve compliance). CONCLUSIONS: These findings go in line with the theory that government intervention makes industry-self regulation more mandated and less voluntary. Under less government intervention, industry actors may promote more voluntary efforts to comply