Alex Augusto Timm Rathke

Corruption and earnings management in developed and emerging countries

Purpose n n n n nThe purpose of this study is to examine whether firms from countries presenting higher levels of corruption are more likely to have higher levels of earnings management than their counterparts from countries with lower levels of corruption. It also explicitly examines how this relationship compares between emerging and developed economies. n n n n nDesign/methodology/approach n n n n nUsing multiple regression analysis, this study tests the hypothesis of positive association between the countries’ level of corruption and the level of earnings management using a sample of foreign firms with American Depositary Receipts in the US market. n n n n nFindings n n n n nFindings indicate that higher corruption perception is related to higher incentives for firms to manipulate earnings in the case of emerging countries. Such results are not identified in developed countries where the level of minority investors’ protection is higher. Findings also indicate that in developed countries earnings management is negatively related to investor protection, which is not the case for emerging countries. n n n n nOriginality value n n n n nAs far as the authors are aware, this study is the first to examine the effects of corruption on earnings management on the basis of accounting firm-level data.

Exploring the characteristics of transfer pricing systems across countries

This paper analyses the characteristics of transfer pricing systems across countries, in order to identify the grouping structures intrinsically related with rules similarities, and to explore the key characteristics revealed by each group. Applying hierarchical agglomerative technique for comparison of an extensive set of attributes from domestic transfer pricing regulations, we find substantial differences among transfer pricing rules thus to support the segregation of three major groups of countries. The variance across transfer pricing systems refers not only to formal tax provisions, but also to practical requirements and regular actions from authorities, and to governments openness for discussion of unclear tax positions. Although most regulations follow the main guidelines established by OECD, additional unilateral mechanisms remain, suggesting that countries face distinct profit shifting occurrences and need to create specific measures in attempt to restrain it. It thus implies the existence of gaps in current transfer pricing guidelines, and reinforces the call for new anti-shifting mechanisms to cover a broader set of shifting arrangements.