Academic Research Real-Life Relevance - Essay Example

Academic Research: Does It Have Any Real-Life Relevance and Make a Contribution To The Development of Accounting and Finance Regulation? Word Count: 2,531 (10 pages) I. Introduction Academic research: has made great strides in the realms of real-life relevance to accounting and finance regulation; is generally good for finance; and also, at the same time, can be irrelevant to accounting and finance regulation in real-life situations. So, although academic research may be beneficial, it may not always be necessary or even helpful. A range of research issues which have been identified and then linked specifically to outcomes in the form of regulations and/or changes in regulations will be discussed, which include, but are not limited to (in no particular order): “quants,” President Obama and his leadership regarding fiscal policy, the American Jobs Act (and what it attempts to actually achieve), U.S. Secretary of the Treasury Timothy Geithner, Chairman of the Fed in the U.S. Ben Bernanke, the U.S. debt ceiling crisis, and the key players and instigators in the European financial crisis of 2011 (but mainly the UK, Greece, Spain, Italy, Germany, and France). As one can see, there are a plethora of areas which are going to be plumbed in this research, and it is hoped that it will be beneficial to both academics and those working in the financial sector in real-time on the ground. II. How Academic Research Can Have Real-Life Relevance and Make a Contribution to Accounting and Finance Regulation Academic research has made significant contributions to the real-life relevance of accounting and finance regulation, which will be supported here by research that demonstrates this fact. Many times, people ask, what is the real-world application of academics to accounting and finance regulation. The answer is, many of the real-world applications are entities that spurs infighting within the academic world. “[T]he interests of accountants in what we sometimes call the ‘real world’ have broadened…With regard to academic research…this is driven by the choices of academics themselves…” (Whittington, 2007, pp. 420). Without a doubt, academia is definitely spurred on by what interests people who are studying these fields. If it were not for them, probably the field of academic research in finance and accounting would not necessarily be as prolific. So, that is one view. “[B]oth of the 2008 US presidential candidates, Barack Obama and John McCain, promised greater regulation of the finance industry and to rein in ‘self-interest, greed, irresponsibility and corruption’ “ (Bratton, Denham, & Deutschmann, 2009, pp. 301). Unquestionably, the academic world is—although some may argue to the contrary—concerned about real-world applications of their findings to the world of finance and accounting. It may be difficult to do, but many academics are in favor of trying to extract the lessons that can be learned from real-life scenarios, instead of just working on case studies. Alan Greenspan did just that. Alan Greenspan was the former chairman of the U.S. Federal Reserve (a.k.a. “The Fed”) for a numerous amount of years. At any rate, his outlook on the U.S.’s future, and the country’s ability to pay back its enormous debt to its debtors—are both waning. Alan Greenspan was replaced in the Bush ’43 Presidency with Ben Bernanke—who stayed on after President Barack Obama was elected in 2008. “A large body of academic research has investigated the extent to which financial accounting information is used…” (Solomon, 2007, pp. 146). Apparently this did not apply to Mr. Bernanke—who, within the span of Bush’s eight-year Presidency and the beginning of Barack Obama’s—did little if nothing to interest rates while in his post as Federal Reserve chairman. Unfortunately, Mr. Bernanke’s extensive academic background did little, and has still done so little for, Obama’s Administration. What the Fed needs is to perhaps have the government start something similar to what Franklin Roosevelt did with the New Deal. “Ed Kane has been the most prolific and articulate proponent of this view [that federal financial regulation was a bad idea]” (Lo, 1996, pp. 10). Of course, it is with the help of several particular people that academia stands a chance to succeed. For example, “[i]ndirect contributions, such as research on cryptographic algorithms that now play a critical role in financial services…” (National Academy of Engineering, 2003, pp. 192). What the Fed might really need—and need badly—is a good auditor. “[An] auditor is required to determine whether the financial statements are presented fairly in accordance with general auditing principles and the requirements as set out by the respective regulator[, and is also] required to implement procedures to gauge the extent to which the insured institution is compliant with the necessary standards, rules, and regulations” (Singh, 2007, pp. 174). Regarding trade on Wall Street, the U.S. debt ceiling crisis reached a peak in early October of 2011, when the U.S.’s credit rating was downgraded to a double-A (AA from a triple-A (AAA). This sent Wall Street into a frenzy, not to mention made other countries’ leaders go into panic mode. A Chinese official stated that the U.S. needed to cure itself of its ‘addiction to debt.’ What few people know is who actually really runs Wall Street. They’re called ‘quants,’ and they’re very good at what they do. They essentially do all of the research on the stock market in order to ensure that the wealthy stay wealthy and that the rich get richer. It’s as simple as that. ‘Quants’ is a short way of saying quantitative analysts. “[T]he quantitative analysts, econometricians and traders…are now a common part of any trading or investment concern…by applying algorithmic models…” (Gunn, 2009, pp. 239). Quants are the wrench in the monkey-works that is the U.S. stock market. Quants are highly-paid research analysts who basically determine the value of various entities in the U.S. stock market—and then make sure their firms capitalize on the deals being done. Quants are recruited from the best universities in the country, some of them hanging onto their newly-minted Ph.D.’s once they get out the door of university life, coming to live in New York City and make the big bucks for doing what might be a minimal amount of research—to a quant. Quants basically get paid for watching the stock market like hawks, and then making sure their clients profit from it, big-time. “Using an optimizer and a risk model, quants build portfolios to explicit objectives and constraints versus a benchmark…Quants can attribute performance, or assign blame, to each step in the investment process…” (Wagner and Rieves, 2009, pp. 126). So, people who say academic research doesn’t contribute at all to accounting or financial regulations are wrong—dead wrong. III. When Academic Research is Good for Finance Thus, academic research can be very good for the financing world—when it works. When it doesn’t, at its worst, it’s just purely puffed-up charlatanism—at best, academic showmanship. There is a definite difference between the ways academics in finance would perceive certain research versus academics in the accounting world. “In very many ways… accounting and finance are closely related in practice and in research. This suggests that finance research belongs in a chapter that considers the traditions of accounting research. Many accounting academics would [embrace this tenet] because finance theory and practice underpin a large body of accounting research” (Lamb, 2005, pp. 61). Of course, financial theory isn’t for everybody. That’s why the U.S. debt ceiling crisis had everyone in a crosshairs over how to solve the problem. The Democrats were blaming the Republicans, and vice versa. The President was frustrated, and finally, both sides decided to have a Super-Committee oversee the entire rehashing of the debt ceiling crisis which was supposed to be put off until November of 2011 to stave off the crisis. Now, November of 2011 is here already and now everyone’s starting to waffle again, because this is the beginning of the end for many Republicans. The Republican Presidential primaries will be over by March of 2012, so what the Republicans do in Congress will probably echo throughout the whole year of 2012, basically giving Barack Obama the next four years handed to him on a silver platter. As far as most Republicans are probably concerned, he can have it if he wants. The American economy is in such a dire estate—after not one, but two—failed wars (Iraq and Afghanistan), the U.S. is bleeding green all over the place. In order to stop the bleeding, President Obama came up with the miracle idea of the American Jobs Act. However, the brilliancy of Congress is that it is mostly made up of Republicans, who are opposed to pushing the legislation through Congress. Now, if that isn’t crazy, it’s not sure what is the right solution, then. In the UK, it’s quite a different story in terms of how academics are perceived there. “It should be noted that accounting and finance academics operate primarily as one academic body in the UK. The accounting academics have long been sympathetic to a qualitative research tradition. In [the U.K. and Europe]…there has been a supportive climate…for a qualitative approach to finance and accounting related research” (Humphrey, 2007, pp. 50). Quantitative research is not only good—it’s great! Now if only Europe could get some—because, frankly, it seems like Nicholas Sarkozy, with the exit of his Finance Minister, is not doing too well handling France’s financial situation. This is what leads us to talk about the European debt crisis, and how things are being handled across the pond from the U.S., and essentially how academic research—no matter how much of it one completes—does not necessarily make any guarantees regarding making real-world contributions to either accounting or finance regulation. IV. How Academic Research Does Not Make a Contribution to Accounting and Finance Regulation Sometimes, the truth hurts. It hurts, in fact, so bad that many in the UK and Europe are having a difficult time admitting that they are in just as bad as financial shape as, or worse than, the good ole’ U.S. of A. But, alas, it’s true. The UK and much of Europe are in dire economic financial straits. With Greece having recently spun out of control, the economic situation in Europe does not look good… at all. “At the moment Chinese academics are debating whether the euro can hold, given the different economic situations…” (European Union Committee, 2010, pp. 66). Since here, one is taking the opposing view, a wide range of areas have been identified where research has been undertaken and has not made a contribution or perhaps even confused issues in accounting/finance. Of course, this is not all about the UK and Europe. Americans’ debt is substantial too, and it is growing every day. In fact, many people do not know how badly in debt the U.S. is. America is trillions (trillions!) of dollars in debt. Think about how much a trillion dollars is. If you can’t imagine it, think about eight American football field stadiums stacked to the brim with dollars. That’s how much a trillion dollars is. Pretty scary, isn’t it? “There is a significant academic debate right now about whether at the first hint of recovery Americans start spending more money than they earn again” (Romans, 2010, pp. 18). Americans are basically spending way too much money that is not in their budget. The name of Christine Romans’s book was, “Smart is the New Rich: If You Can’t Afford It, Put It Down.” Her book was titled that for a reason—and it wasn’t just because most people who won’t be able to afford her book won’t put it down, but that is largely a part of the problem. Americans are just big spenders. They spend copious amounts of money for everything, from food to gas to clothing, to large oversized cars that they don’t need. Vans, trucks, SUV’s—everything that is all wrong with miles per gallon—Americans drive ‘em, here, there, and everywhere. Part of this problem is America’s psyche. The debt problem is so huge, it’s making President Obama go greyer faster than a baby asks for candy. Excuses about having made mistakes on one’s taxes are so banal these days, especially when it is an academic roasting over the fiery coals of appointment committes. “After all, if you leave some income off your taxes, Im pretty sure the IRS will not be accepting ‘sorry,’ ‘I forgot,’ or ‘I used TurboTax’ as an excuse. And that brings us to admitted tax violator Timothy Geithner” (Beck and Kerry, 2009, pp. 37). Academic research reassures people—Americans in particular, as an example, let’s say—about almost absolutely nothing. The U.S. Secretary of the Treasury, Tim Geithner, made it clear that TurboTax didn’t work well for him: “In [a] confirmation hearing, Treasury Secretary nominee Tim Geithner said he used TurboTax to prepare his returns for the years in question where he failed to pay self-employment taxes — even though he collected reimbursement from his employer, the International Monetary Fund” (Geraghty, 2009, pgh. 1). How bad is that? The U.S. Secretary of the Treasury couldn’t figure out “TurboTax” (an automated tax program that calculates how much taxes one owes to the government). To be fair, just think…how simple is TurboTax? It surely can’t be that difficult, as other programs on such sites like eztaxreturn.com, which offer Americans tax returns to be completed quickly and easily at their behest. The fact that the U.S.’s own Secretary of the Treasury couldn’t properly manage his own taxes should tell you something right there. Despite having fancy credentials and having graduated from the top schools, Timothy Geithner looks like a fantastically huge fraud. “As Paulson put it a few months after leaving office: ‘We succeeded in keeping the financial system from collapse, [but] Tim Geithner was still trying to find his footing at the US Treasury’ ” (Wessel, 2010, pp. 266). He would have left his post earlier, but he didn’t want to leave in the middle of the U.S.’s huge financial crisis—the only original member of President Obama’s economic team who has stayed on with him over the term of his Presidency. Most likely, Geithner will be looking to leave sometime in January—and, it’s frustrating to say, but, on some level...people somewhere will be going ‘good riddance!’ Because, there is nothing more frustrating than having someone incompetent who is taking up space in office who has no business being there. As it might also be posited, few people may care about this. The bottom line: nobody cares. “[No one] cares about academic finance. [The academics’] idea is to look good, to teach MBAs […] but they are quite irrelevant” (Haug, 2007, pp. 10). That’s what’s sad, is nobody cares anymore. Even if these people graduated from the top schools, and are the cream of the crop of the nation—that’s what it boils down to, no one does their job well enough anymore, and it shows, because people just don’t care. Some suggest that what one makes really determines one’s ‘financial IQ.’ “[T]he only true measure of financial smarts is how much you make. If youre really smart, youll earn more. And if you earn more, you must be really smart” (Leopold, 2009, pp. 169). Some of the people in Washington, D.C., are definitely quants themselves, outdoing themselves over and above what duties they have been called on to fulfill. “Quants need to get in touch with how data inaccuracy, statistical misuse, and misspecified probability distributions lead to errors” (Wagner & Rieves, 2009, pp. 41). That is why Standard and Poor’s should wake up and realize that their calculations of the U.S.’s credit rating should definitely be analyzed with a microscope—everyone knew that was just bad math. But the UK and Europe should also worry too, if that is the state of things in the U.S., the “Greatest Nation on Earth” [sic]. V. Conclusion Indeed, we live in an interesting world. But perhaps no world is more interesting than that of the leaders of our world, who insist upon doing some very curious things with other people’s money. When we wake up one day, and realize that our savings are gone for retirement, the kids’ college funds are already spent, and we don’t own anything—land, a car, anything—we will realize how bankrupted we were in the first place. But one is not speaking of fiscal bankruptcy, but moral bankruptcy. Because that is the kind of thinking that is leading to our world’s economic downfall and instability. Academic research into finances and accounting, for sure, can be one of the best things that any country in the world can do, and sometimes it accomplishes great things; on the other hand, it can also be one of the greatest schemes in the book. Truly, we wage not a war with fists, but a war of words—and none will ever be so sly as a politician with a goal in his mind. But we, the “people,” those who are governed, definitely have a say in how and when we will let a politician govern us and when we will have him lead us. So, we the people are asking not only for a politician who is able to govern with the just consent of the people—but a politician (or politicians) who can lead us into the 21c economy that is aware of what is going on around us. BIBLIOGRAPHY Beck, G., & Kerry, J. (2009). Glenn Becks common sense: the case against an out-of-control government, inspired by Thomas Paine. US: Simon and Schuster. Bratton, J., Denham, D., & Deutschmann, L. (2009). Capitalism and classical sociological theory. Canada: University of Toronto Press. European Union Committee. (2010). Stars and dragons. UK: The Stationery Office. Geraghty, J. (2009). 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