Thomas Rauter

Assistant Professor of Accounting
IBM Corporation Faculty Scholar & Asness Junior Faculty Fellow

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The Effect of Mandatory Extraction Payment Disclosures on Corporate Payment and Investment Policies Abroad

I examine how mandatory extraction payment disclosures (EPD) ─ a policy solution intended to discourage corporate payment avoidance in the oil, gas, and mining industries ─ affect fiscal revenue contributions and investments by multinational firms in foreign host countries. Using the staggered adoption of EPD across firms headquartered in Europe and Canada, I find that disclosing companies increase their payments to host governments, decrease investments, and obtain fewer extraction licenses relative to non-disclosing competitors. These effects are stronger for firms that face a high risk of public shaming, operate in corrupt host countries, and have a high exposure to bribery-prone payments, suggesting that EPD increases the reputational cost of corporate behavior that could be perceived as exploitative. The resulting reallocation of investments from disclosing to non-disclosing firms reduces drilling productivity and resource production in host countries, consistent with uneven disclosure regulation distorting capital allocation.

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Presentations: Chicago Booth | MIT Sloan | Stanford | Wharton | Harvard | IMF | Dartmouth | CMU | FARS 2019 | UNC/Duke Fall Camp 2018 | EAA 2018 | INSEAD | IESE | Bocconi | Mannheim | LMU Munich | Frankfurt School | WU Vienna

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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Presentations: 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

Policeman for the World: The Impact of Extraterritorial FCPA Enforcement on Foreign Investment and Internal Controls

We show that a mid-2000s increase in US extraterritorial enforcement of the Foreign Corrupt Practices Act (FCPA), characterized by greater international regulatory cooperation and more frequent use of the FCPA’s accounting provisions, has a significant deterrent effect on foreign direct investment in high-corruption-risk countries. The decrease in investment is at least as large for non-US as for US firms, suggesting that increased extraterritorial enforcement helps to level the foreign-investment playing field. Firms with fundamental characteristics that make it more difficult to maintain effective internal controls invest less in high-corruption-risk countries, suggesting regulatory compliance costs play an important role in deterring investment. Consistent with investments in accounting systems being one margin firms move on to limit enforcement risk when investing in high-corruption-risk countries, firms pursuing new investments spend more time evaluating potential acquisition targets and firms with existing investments report fewer internal-control weaknesses and restatements related to unintentional errors.

Presentations: FARS 2019 | Chicago Booth | HU Berlin | UNC | Northwestern Kellogg | Minnesota Carlson | Boston University | Global Issues in Accounting Conference 2018 | Colorado Summer Accounting Conference 2019 | LBS | LSE | University of Zurich | Baruch College | Florida International University

Reversing the Resource Curse: Foreign Corruption Regulation and Economic Development

We examine the impact of foreign corruption regulation on economic development in high-corruption-risk areas. We find that, after a mid-2000s increase in enforcement of the US Foreign Corrupt Practices Act (FCPA), economic activity (measured by nighttime luminosity) in African communities within a 50-kilometer radius of natural resource extraction facilities subject to the FCPA increases by 8%. Local perceptions of corruption also significantly decline. Consistent with the increase in economic activity being driven, at least in part, by existing extraction firms shifting to business practices that are more beneficial to the local communities where they operate, the association between resource production and local economic activity increases by 37%. Overall, our findings suggest that anti-corruption regulation originating in developed countries is effective in changing corporate behavior and has a positive economic impact in developing countries.

Perceived Precautionary Savings Motives: Evidence from FinTech

We study the consumption response to the provision of credit lines to individuals that previously did not have access to credit combined with the possibility to elicit directly a large set of preferences, beliefs, and motives. As expected, users react to the availability of credit by increasing their spending permanently and reallocating consumption from non-discretionary to discretionary goods and services. Surprisingly, though, liquid users react more than others and this pattern is a robust feature of the data. Moreover, liquid users lower their savings rate, but do not tap into negative deposits. The credit line seems to act as a form of insurance against future negative shocks and its mere presence makes users spend their existing liquidity without accumulating any debt. By eliciting preferences, beliefs, and motives directly, we show these results are not fully consistent with models of financial constraints, buffer stock models with and without durables, present-bias preferences, uncertainty about future income, bequest motives, or the canonical life-cycle permanent income model. We label this channel the perceived precautionary savings channel, because liquid households behave as if they faced strong precautionary savings motives even though no observables suggest they should based on standard theoretical models.

Presentations: AFA 2020 | AEA 2020 | Red Rock Finance Conference 2019 | Columbia New Technologies in Finance 2019 | CFPB Research Conference 2019 | LBS Summer Finance Symposium 2019 | ISB Summer Research Conference 2019 | Asian Bureau of Finance and Economic Research

The Impact of Open Data on Public Procurement

We examine how open procurement data affect the award procedures and execution of government contracts. The European Union recently made its historical procurement notices available for bulk download in a cohesive and user-friendly database. Comparing government contracts above and below EU publication thresholds, we find that, after the open data initiative, procurement officials are more likely to award treated contracts through open bidding. Consistent with open data promoting higher public scrutiny, the effect on open bidding is stronger in countries with larger increases in negative procurement-related media coverage. However, treated contracts are also more likely to experience costly modifications, a result for which we find two separate underlying channels. First, the shift to more rigid open bidding procedures limits officials’ discretion in selecting suppliers based on private information (competitive bidding channel). Second, open data exacerbate voter pressure on officials to award contracts based on the lowest price (price focus channel). Our results replicate in an alternative open data setting, suggesting that our inferences apply more broadly.

Presentations: Chicago Booth | UWAC | MIT Sloan | Yale | Columbia | UC San Diego | University of Zurich | NYU Stern