Forthcoming Articles

Tax Ambiguity, Audit Errors, and Tax Compliance
*Sung-Soo Yoon, Korea University
Seung-Weon Yoo, Korea University
Jinbae Kim, Korea University

Abstract
We examine the impact of tax law ambiguity and tax audit errors on tax compliance in a setting where litigation is allowed. A decrease in audit errors discourages aggressive reporting and leads to fewer audits and trials. A reduction in tax ambiguity, however, has indeterminate effects on aggressive reporting and litigation frequencies. A more effective tax audit benefits taxpayers with relatively strong cases but not those with weak ones. A tax cut encourages aggressive reporting and lowers net revenue. An increase in the penalty, however, leads to less aggressive reporting and higher net revenue without making anyone worse-off.

A Synthesis of Accrual Quality and Abnormal Accrual Models: An Empirical Implementation
*Jinhan Pae, Korea University

Abstract
Dechow and Dichev’s (2002) accrual quality model suggests that the Jones (1991) abnormal accrual model can be improved with the inclusion of past, current, and future operating cash flows. A problem with the empirical implementation of this synthesis is that the augmented accrual model requires future operating cash flow information. I propose an equivalent accrual model that is not subject to the "peek ahead" bias and further takes into account the reversal of past accruals. The proposed model improves explanatory power of the Jones accrual model and makes a difference in inferences about abnormal accruals of firms with accounting restatements and the market mispricing of abnormal accruals.

Foreign direct investment and environmental policy: have location factors been neglected?
*Francesca Sanna-Randaccio and Roberta Sestini, University of Rome "La Sapienza"

Abstract 
This paper analyses the effect of asymmetric environmental policies on firms’ international location strategies in pollution-intensive sectors, when countries differ in terms of market size. The model shows that, when the tighter mitigation measures are introduced by the larger country and unit transport cost is high, the probability of firms not relocating abroad via foreign direct investment increases with market asymmetry. Furthermore, in some key scenarios, the total relocation outcome predicted by the Pollution Haven Hypothesis is never an optimal strategy. The analysis suggests that international environmental rules should take account of differences in countries’ market size and thus ability to attract production.

Tax Revenue Manipulation by Local Taxation Administrations in China
*Yi-Hong Deng and Ting Luo, Tsinghua University, Beijing

Abstract
This paper investigates the tax revenue manipulation in China by local taxation administrations to achieve a sustainable performance. We document a higher volatility in the effective corporate income tax rates for those companies registering in provinces with more tax sources caused by the manipulation. We also find that companies' ability to pay tax is negatively correlated with the probability of being selected by local taxation administrations for the purpose of tax revenue manipulation. Secondly, local taxation administrations' relationship with companies and the subsidy allocated to companies have no significant effect on this selection.

The Impact of Management Control System on Efficiency and Quality Performance – An Empirical Study of Taiwanese Correctional Institutions
Joanna L. Ho, University of California, Irvine
Cheng-Jen Huang, Tunghai University, Taiwan
*Anne Wu, National Chengchi University, Taiwan

Abstract
Management control system (MCS) has been widely suggested as a key framework with which organizations can utilize to increase the probability that people make decisions and take actions congruent with the entire goals of the organizations. Most of the previous studies have mainly focused on efficiency performance and we have little knowledge of the impact of management control systems on both quality and productivity performance. In this study, we use both non-parametric data envelopment analysis (DEA) and parametric stochastic frontier analysis (SFA) to examine how MCS affects efficiency and quality performance in correctional institutions. Our results show that correctional institutions in Taiwan have considerable technical inefficiency which is attributable to their unfavorable resource usage. We also find that correctional institutions with tight MCS have higher efficiency and quality performance. Our overall results support the argument that tight control systems can be used to achieve efficiency and quality performance.

The Size of the Market
*Martin J. Beckmann
Brown University and Technical University of Munich

Abstract
The size of the market is the number of buyers that can be reached effectively in a spatial market. We exhibit as determining factor the intercept of the demand function with production cost and with transportation cost. For linear demand and cost function explicit form has to be given. Market structures considered are isolated monopoly, monopolistic competition and perfect competition. When transportation costs fall, markets expand under monopoly, but shrink under monopolistic or perfect competition.

Entry Mode, Technology Spillover and Host-Country Welfare
*Ya-Chin Wang, Kun Shan University, Taiwan
Leonard F.S. Wang, National University of Kaohsiung, Taiwan

Abstract
This paper examines how technological spillover affects foreign entry, R&D level, and host country's welfare. It finds that the strategic effect decreases as R&D spillover increases. The foreign firm tends to raise the likelihood of choosing direct entry when the technology spillover is larger. For the foreign firms as well as the host country, there is no difference between choosing direct entry or acquisition when market is extremely competitive. On regulation of foreign ownership, technology spillover creates the possibility of choosing direct entry for the foreign firm, which is different from the results obtained in Mattoo et al. (2004).

State Regulation's Significant Impact on Corporate Governance Practices, Earnings Management, and Disclosure
*Shirley J. Daniel, Joshua K. Cieslewicz and Thomas C. Pearson, University of Hawaii at Manoa

Abstract
We provide a theoretical basis for the relationship between the institutional environment, corporate governance practices, disclosure, and earnings management at the nation level. We then provide empirical evidence of these relationships.