Thomas Rauter

Assistant Professor of Accounting &
IBM Corporation Faculty Scholar

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Procyclicality of U.S. Bank Leverage

In light of the current debate about the link between accounting and financial stability, we investigate the determinants of procyclical book leverage for US commercial and savings banks. We find that total asset growth and GDP growth are both positively related to book leverage growth. Our evidence is not consistent with the notion that fair value accounting contributes to procyclical leverage or that historical cost accounting reduces procyclicality. Overall, the business model of banks is more important for procyclical leverage than accounting or regulatory risk weights.

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Presented at: JAR Conference 2016 | EAA 2015 | OEFG Workshop 2015 | Bundesbank-SAFE-ZEW-CEPR Joint Conference 2016 | Basel Committee and Deutsche Bundesbank Joint Conference 2014 | EFA 2014 | Barcelona Summer Forum 2014 | Goethe University Frankfurt | WU Vienna

Working Papers

Disclosure Regulation, Corruption, and Investment: Evidence from Natural Resource Extraction

  • Single Authored, Job Market Paper
  • Latest Draft: December 2018

I study the real effects of mandatory social responsibility disclosures and their underlying economic mechanisms by exploiting a novel institutional setting in the extractive industries. In Europe and Canada, extractive firms have to publicly disclose their payments to foreign host governments in a granular report on their corporate website to discourage the bribery of foreign public officials and other illicit payment avoidance practices. Using manually-collected data on firms' extractive activities abroad and exploiting the staggered, plausibly-exogenous adoption of extraction payment reports across developed countries and firms' fiscal year ends, I find that disclosing companies increase their payments to host governments but decrease and reallocate investments relative to non-disclosing competitors, particularly in corrupt countries. Additional cross-sectional evidence indicates that the increased threat of public shaming and legal enforcement are two important mechanisms through which these disclosures generate real effects. In contrast, I do not find that extraction payment disclosures improve aggregate corruption indices abroad, which questions unilateral disclosure mandates aimed at addressing social policy objectives.

Presented at: Chicago Booth | MIT Sloan | Stanford | Wharton | Harvard | IMF | Dartmouth | CMU | UNC/Duke Fall Camp 2018 | EAA 2018 | INSEAD | IESE | Bocconi | Mannheim | LMU Munich | Frankfurt School | WU Vienna

The Effect of Foreign Corruption Regulation on Corrupt Countries

We examine how foreign corruption regulation that prohibits the bribery of foreign public officials and requires accounting systems that can detect improper payments (“FCR”) affects corporate investment policies and economic and political conditions in corrupt countries. As the treatment, we exploit the significant worldwide increase in U.S. FCR enforcement for OECD firms in the mid-2000s. We find that, in corrupt countries, FCR leads to a decline in aggregate foreign direct investment and an increase in firms’ internal anti-bribery controls, but does not appear to harm the competitive position of U.S. relative to other OECD firms. Focusing on the African mining sector, we further find that after FCR, in mining areas where OECD firms operate, world mineral prices exhibit a higher association with economic development and lower association with political unrest relative to mining areas where OECD firms do not operate. These associations are consistent with local communities benefitting more from their natural resource endowments after FCR. Overall, our evidence suggests that global U.S. enforcement of foreign corruption regulation changes corporate investment policies and improves economic and political conditions in areas where foreign firms operate.

Presented at: Chicago Booth | Global Issues in Accounting Conference 2018

Perceived Precautionary Savings Motives: Evidence from FinTech

We study the consumption response to the introduction of a mobile overdraft facility on a FinTech app. Users react to the availability of the overdraft by increasing their consumption spending permanently and reallocating consumption from non-discretionary to discretionary goods and services. For identification, we exploit sharp discontinuities in the size of the overdraft limit based on an income rounding rule the app uses to assign credit limits. In the cross section, we find similar responses for young and old users, users with high and low income volatility, and users with steep and flat income paths. The most liquid users - those with high ratios of deposits to income inflows - drive the consumption spending response. These results are not fully consistent with models of financial constraints, buffer stock models with and without durables, present-bias preferences, or the canonical life-cycle permanent income model. We discuss a new channel, the perceived precautionary savings channel, which appears consistent with all our results. Under this channel, households with higher liquid wealth behave as if they faced strong precautionary savings motives even though no observables suggests they should do so.

Work in Progress

Bank Governance and Financial Stability