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Size management at regulatory thresholds by Norwegian companies

Heide, Just Christian; Aardal, Knut Østtveit
Master thesis
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URI
http://hdl.handle.net/11250/2484293
Date
2017
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  • Master of Science [1116]
Abstract
Discrete regulatory thresholds can incentivize companies to adjust size. In this

thesis, we examine size management by Norwegian companies around thresholds for

audit exemption, size classification and VAT-reporting. We adapt recently developed

methodology on bunching. Our sample consist of data from all reported financial

statements of Norwegian limited liability companies in the period of 1994 to 2015.

We identify significant size management around the revenue threshold for

audit exemption, but it is not found around the other thresholds. In the period 2012-

2015, there are approximately 14% more company-years than expected just below the

revenue threshold, but the economic effect is limited. The average adjustment is

estimated to approximately 147,000 NOK, adding up to a total of 58 mNOK. We are

not able to identify one dominant method of size management, but our analysis

indicate that companies reduce input rather than underreport revenues. The behavior

is temporary and does not appear to significantly limit growth. Furthermore, we find

a higher proportion of size management in unaudited companies and cash-intensive

industries.
Description
Masteroppgave(MSc) in Master of Science in Business, Business law, tax and accounting - Handelshøyskolen BI, 2017
Publisher
BI Norwegian Business School

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