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

77 Pages Posted: 10 Oct 2017 Last revised: 21 Aug 2020

See all articles by Thomas Rauter

Thomas Rauter

University of Chicago - Booth School of Business

Date Written: August 20, 2020

Abstract

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.

Keywords: Real Effects; Disclosure Regulation; Fiscal Revenues; Foreign Investment; Resource Allocation; Reputational Cos

JEL Classification: G14; G38; H20; H26; K22; L71; M41; M48; O47

Suggested Citation

Rauter, Thomas, The Effect of Mandatory Extraction Payment Disclosures on Corporate Payment and Investment Policies Abroad (August 20, 2020). Available at SSRN: https://ssrn.com/abstract=3049941 or http://dx.doi.org/10.2139/ssrn.3049941

Thomas Rauter (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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