Asia-Pacific Journal of Accounting & Economics
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Volume 18, Issue No. 1, April 2011

  • Martin J. Beckmann, The Size of the Market, 1-10

  • Sung-Soo Yoon, Seung-Weon Yoo and Jinbae Kim, Ambiguity, Audit Errors, and Tax Compliance, 11-26  

  • Jinhan Pae, A Synthesis of Accrual Quality and Abnormal Accrual Models: An Empirical Implementation, 27-44

  • Francesca Sanna-Randaccio and Roberta Sestini, Foreign Direct Investment and Environmental Policy: Have Location Factors Been Neglected?, 45-60

  • Yi-Hong Deng and Ting Luo, Do Tax Revenue Manipulation by Local Taxation Administrations in China, 61-76

  • Joanna L. Ho, Cheng-Jen Huang and Anne Wu, The Impact of Management Control Systems on Efficiency and Quality Performance – An Empirical Study of Taiwanese Correctional Institutions, 77-94

  • Announcements, 95-103


The Size of the Market

Martin J. Beckmanna
aBrown University, USA, and Technical University of Munich, Germany

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.

JEL Classifications: A11, D4, D41

Keywords: Market size, market structure


Ambiguity, Audit Errors, and Tax Compliance

Sung-Soo Yoona*, Seung-Weon Yooa and Jinbae Kima
aKorea University


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.

JEL Classifications: H21, K34

Keywords: tax ambiguity, audit error, tax litigation, and tax compliance


A Synthesis of Accrual Quality and Abnormal Accrual Models:
An Empirical Implementation

Jinhan Paea*
aKorea University

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 the 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.

JEL Classifications: M41

Keywords: Quality of accruals, quality of earnings, operating cash flows, abnormal accruals


Foreign Direct Investment and Environmental Policy:
Have Location Factors Been Neglected?

Francesca Sanna-Randaccioa* and Roberta Sestinia
aUniversity of Rome “La Sapienza”

This paper analyzes 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.

JEL Classifications: F12, F23, Q58

Keywords: Multinational firms, FDI, environmental policy, transport costs


Tax Revenue Manipulation by
Local Taxation Administrations in China

Yi-Hong Denga* and Ting Luoa
aTsinghua University, China

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. Second, local taxation administrations’ relationships with companies and the subsidy allocated to companies have no significant effect on this selection.

JEL Classifications: H32, H71, M21

Keywords: Taxation administration, tax revenue manipulation, effective tax rate, volatility


The Impact of Management Control Systems on Efficiency and Quality Performance –
An Empirical Study of Taiwanese Correctional Institutions 

Joanna L. Ho,a Cheng-Jen Huangb and Anne Wuc*
aUniversity of California, Irvine
bTunghai University, Taiwan
cNational Chengchi University, Taiwan

Management control systems (MCS) have been widely suggested as a key framework with which organizations can 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 MCS 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.

JEL classification: M41

Keywords: Data envelopment analysis, management control system, non-profit organizations, productivity, quality management