Capital Markets Regulation: How Can Accounting Research Contribute?

In examining the possible contribution that accounting research can play in ensuring effective and efficient regulation of securities markets, two principal opportunities stand out. First, the role of research in informing debate about proposed regulatory intervention (ex ante contribution to regulatory debate). Second, the ability of research to inform analysis as to the effectiveness of previously implemented regulatory changes (ex post contribution to regulatory debate). In the ex ante case, there is a natural tension between the way in which regulatory initiatives often arise quickly and the inevitable passage of time required to fully appreciate the degree to which underlying problems have been correctly characterised and can be framed in a manner suitable for addressing via rigorous analytical and empirical research. It is also impossible to empirically assess the effect of regulatory intervention that has not yet occurred. Finally, if data are simply not available, then research is limited to analytical analysis and prediction. In the ex post case, there is often a natural reluctance to subject regulatory intervention to mandatory analysis, and even when a statutory requirement exists for such analysis and review, the time horizon is often far too short for meaningful analysis. In both the ex ante and ex post cases, what is unavoidable is that regulation can only be legitimately informed by research that is sufficiently rigorous so as to have robust conclusions. Assessing research on these dimensions means that transparency is required so as to allow researchers to engage in meaningful debate about the validity of the conclusions. This inevitably means that research needs to be a partnership between regulatory agencies and academia, and that when research is used to justify regulatory interventions it must be publicly available and subject to robust debate.