Evidence-Based Policymaking: Promise, Challenges and Opportunities for Accounting and Financial Markets Research

53 Pages Posted: 16 Dec 2018 Last revised: 20 Jan 2019

See all articles by Christian Leuz

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Leibniz Institute SAFE; CESifo Research Network; Center for Financial Studies (CFS)

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Date Written: November 24, 2018

Abstract

The use of evidence and economic analysis in policymaking is on the rise, and accounting standard setting and financial regulation are no exception. This article discusses the promise of evidence-based policymaking in accounting and financial markets as well as the challenges and opportunities for research supporting this endeavor. In principle, using sound theory and robust empirical evidence should lead to better policies and regulations. But despite its obvious appeal and substantial promise, evidence-based policymaking is easier demanded than done. It faces many challenges related to the difficulty of providing relevant causal evidence, lack of data, the reliability of published research, and the transmission of research findings. Overcoming these challenges requires substantial infrastructure investments for generating and disseminating relevant research. To illustrate this point, I draw parallels to the rise of evidence-based medicine. The article provides several concrete suggestions for the research process and the aggregation of research findings if scientific evidence is to inform policymaking. I discuss how policymakers can foster and support policy-relevant research, chiefly by providing and generating data. The article also points to potential pitfalls when research becomes increasingly policy-oriented.

Keywords: Evidence-based policymaking, cost-benefit analysis, regulation, standard setting, accounting, finance, capital markets, causal inferences, political economy

JEL Classification: A11, D61, D72, G18, G38, K22, L51, M48

Suggested Citation

Leuz, Christian, Evidence-Based Policymaking: Promise, Challenges and Opportunities for Accounting and Financial Markets Research (November 24, 2018). Center for Financial Studies Working Paper No. 611, Available at SSRN: https://ssrn.com/abstract=3289935 or http://dx.doi.org/10.2139/ssrn.3289935

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