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Essays in Accounting and Finance

Rauter, Thomas (2018) Essays in Accounting and Finance. PhD thesis, WU Vienna University of Economics and Business.

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Abstract

This dissertation studies real effects of disclosure regulation and topics at the intersection of accounting and banking. It consists of three papers. The notion that mandating disclosure stimulates desirable and discourages undesirable behavior by the disclosing party is an important motivation for financial reporting and transparency regulation. However, there is relatively little evidence on the real effects of mandatory disclosure that directly speaks to this motivation. In "Disclosure Regulation, Corruption, and Investment: Evidence from Natural Resource Extraction", I investigate the real effects of mandatory extraction payment disclosures, which require European oil, gas, and mining firms to publicly disclose their payments to foreign host governments in a granular report on their corporate website. Extraction payment disclosures are substantially more disaggregated compared to previous payment records, allowing activist groups to identify payment discrepancies and exert societal pressure on extractive firms. I exploit plausibly-exogenous variation in the adoption of extraction payment reports across European countries and firms' fiscal-year ends to disentangle the disclosure effects from concurrent but unrelated macroeconomic and regulatory changes. Using manually-collected host country data on firms' extractive activities abroad, I document that disclosing companies increase their payments to foreign host governments but decrease investments relative to tightly-matched, non-disclosing competitors from around the world. The effects are particularly strong for large firms and for firms that sell their products directly to end consumers. Moreover, I find that extraction payment reports are associated with investment reallocations within disclosing firms and across disclosing and non-disclosing companies. I contribute to the prior literature by showing that social responsibility disclosures can have sizeable real effects at the micro level, especially if the threat of public shaming by specialized activist groups disciplines companies not to engage in illicit practices. However, I do not find that extraction payment disclosures are associated with improved measures of corruption at the aggregate host country level, which questions recent unilateral efforts by Western countries to address foreign policy objectives by imposing disclosure regulation on only a subset of companies in the global marketplace. The financial crisis of 2007-2009 triggered a vigorous debate about the role of fair value accounting and revived discussions about procyclicality in banking. While there is evidence that fair value accounting did not play a major role during the crisis, there is still the concern that fair value accounting contributes to instability by inflating credit bubbles via procyclical leverage. In "Procyclicality of U.S. Bank Leverage" (Journal of Accounting Research (2017), Christian Laux and I investigate the determinants of procyclical book leverage for U.S. commercial and savings banks in light of the current debate about the link between accounting and financial stability. Our evidence is not consistent with the notion that fair value accounting contributes to procyclical leverage or that historical cost accounting reduces procyclicality. Overall, we conclude that the business model of banks is more important for procyclical leverage than accounting or bank regulation. A large literature examines the economic benefits of private information production by banks within lending relationships. However, lending relationships are also valuable to banks outside of specific firm-creditor ties. In practice, lenders frequently advertise their participation in syndicated loan transactions through "tombstone announcements" in financial magazines to raise their public profile and use existing lending relationships as a marketing tool to attract new borrowers. Despite anecdotal evidence that banks value the public recognition from high profile transactions, there is little evidence on how lending relationships with prestigious firms shape debt contracting. In "Fishing with Pearls: The Value of Lending Relationships with Prestigious Firms", Alexander Mürmann, Christoph Scheuch, and I provide novel evidence of banks establishing lending relationships with prestigious firms to signal their quality and attract future business. Using unique survey data on firm-level prestige, we show that lenders compete more intensely for prestigious borrowers and offer lower upfront fees to initiate lending relationships with prestigious firms. We also find that banks expand their lending after winning prestigious clients. Prestigious firms benefit from these relations as they face lower costs of borrowing even though prestige has no predictive power for credit risk. Our results are robust to matched sample analyses and a regression discontinuity design.

Item Type: Thesis (PhD)
Divisions: Departments > Finance, Accounting and Statistics
Depositing User: Thomas Christian Rauter
Date Deposited: 25 May 2018 16:38
Last Modified: 08 Jan 2019 21:15
URI: http://epub.wu.ac.at/id/eprint/6335

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