IDEAS home Printed from https://ideas.repec.org/a/eee/aosoci/v34y2009i6-7p835-848.html
   My bibliography  Save this article

The roles of financial asset market failure denial and the economic crisis: Reflections on accounting and financial theories and practices

Author

Listed:
  • McSweeney, Brendan

Abstract

Throughout the world every economic and socio-economic indicator has deteriorated. The so-called 'real economy' has been deeply contaminated by the most significant global financial crisis for seven decades. The ultimate extent and duration of this rampant degeneration and its longer-term political effects are unpredictable but what caused the crisis? This paper examines a range of suppositions made in theories which deny the possibility of financial asset market failure and identifies ways in which they contributed to the circumstances and actions which created the current crisis.

Suggested Citation

  • McSweeney, Brendan, 2009. "The roles of financial asset market failure denial and the economic crisis: Reflections on accounting and financial theories and practices," Accounting, Organizations and Society, Elsevier, vol. 34(6-7), pages 835-848, August.
    • Handle: RePEc:eee:aosoci:v:34:y:2009:i:6-7:p:835-848
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0361-3682(09)00041-5
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Keim, Donald B & Stambaugh, Robert F, 1984. "A Further Investigation of the Weekend Effect in Stock Returns," Journal of Finance, American Finance Association, vol. 39(3), pages 819-835, July.
    2. Wang, Ko & Li, Yuming & Erickson, John, 1997. "A New Look at the Monday Effect," Journal of Finance, American Finance Association, vol. 52(5), pages 2171-2186, December.
    3. Bryan, Stephen & Hwang, LeeSeok & Lilien, Steven, 2000. "CEO Stock-Based Compensation: An Empirical Analysis of Incentive-Intensity, Relative Mix, and Economic Determinants," The Journal of Business, University of Chicago Press, vol. 73(4), pages 661-693, October.
    4. Ittner, Christopher D. & Larcker, David F., 2001. "Assessing empirical research in managerial accounting: a value-based management perspective," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 349-410, December.
    5. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    6. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    7. Domenico Giannone & Michele Lenza & Lucrezia Reichlin, 2008. "Explaining The Great Moderation: It Is Not The Shocks," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 621-633, 04-05.
    8. Yuri Biondi, 2007. "Book review: Following the money- The Enron Failure and the state of corporate disclosure," Post-Print halshs-00203043, HAL.
    9. Ball, Ray & Bartov, Eli, 1996. "How naive is the stock market's use of earnings information?," Journal of Accounting and Economics, Elsevier, vol. 21(3), pages 319-337, June.
    10. Anant K. Sundaram & Andrew C. Inkpen, 2004. "The Corporate Objective Revisited," Organization Science, INFORMS, vol. 15(3), pages 350-363, June.
    11. Barrell, Ray & Hurst, Ian & Kirby, Simon, 2008. "Financial Crises, Regulation and Growth," National Institute Economic Review, National Institute of Economic and Social Research, vol. 206, pages 56-65, October.
    12. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    13. Allen, Beth E, 1981. "Generic Existence of Completely Revealing Equilibria for Economies with Uncertainty when Prices Convey Information," Econometrica, Econometric Society, vol. 49(5), pages 1173-1199, September.
    14. Alessandro Citanna & Antonio Villanacci, 2000. "Existence and regularity of partially revealing rational expectations equilibrium in finite economies," Post-Print hal-00463207, HAL.
    15. Robert F. Bruner & Sean D. Carr, 2007. "Lessons from the Financial Crisis of 1907," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(4), pages 115-124, September.
    16. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2003. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, edition 1, volume 1, number 1.
    17. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    18. Burton G. Malkiel, 2005. "Reflections on the Efficient Market Hypothesis: 30 Years Later," The Financial Review, Eastern Finance Association, vol. 40(1), pages 1-9, February.
    19. Fatemi, Ali & Luft, Carl, 2002. "Corporate risk management: Costs and benefits," Global Finance Journal, Elsevier, vol. 13(1), pages 29-38.
    20. Aigbe Akhigbe & Ann Marie Whyte, 2004. "The Gramm‐Leach‐Bliley Act Of 1999: Risk Implications For The Financial Services Industry," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 27(3), pages 435-446, September.
    21. Francis M. Bator, 1958. "The Anatomy of Market Failure," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 72(3), pages 351-379.
    22. Yermack, David, 1995. "Do corporations award CEO stock options effectively?," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 237-269.
    23. Cho, Young-Hyun & Linton, Oliver & Whang, Yoon-Jae, 2007. "Are there Monday effects in stock returns: A stochastic dominance approach," Journal of Empirical Finance, Elsevier, vol. 14(5), pages 736-755, December.
    24. Dechow, Patricia M. & Sloan, Richard G., 1991. "Executive incentives and the horizon problem : An empirical investigation," Journal of Accounting and Economics, Elsevier, vol. 14(1), pages 51-89, March.
    25. Wynne Godley & Dimitri B. Papadimitriou & Gennaro Zezza, 2008. "Prospects for the U.S. and the World -- A Crisis That Conventional Remedies Cannot Resolve," Economics Strategic Analysis Archive sa_dec_08, Levy Economics Institute.
    26. Brendan McSweeney, 2007. "The pursuit of maximum shareholder value: Vampire or Viagra?," Accounting Forum, Taylor & Francis Journals, vol. 31(4), pages 325-331, December.
    27. Isabelle Huault & V. Perret & S. Charreire-Petit, 2007. "Management," Post-Print halshs-00337676, HAL.
    28. Marens, Richard & Wicks, Andrew, 1999. "Getting Real: Stakeholder Theory, Managerial Practice, and the General Irrelevance of Fiduciary Duties Owed to Shareholders," Business Ethics Quarterly, Cambridge University Press, vol. 9(2), pages 273-293, April.
    29. Patrick Bolton & José Scheinkman & Wei Xiong, 2006. "Executive Compensation and Short-Termist Behaviour in Speculative Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 577-610.
    30. ANITA M. McGAHAN & MICHAEL E. PORTER, 1997. "How Much Does Industry Matter, Really?," Strategic Management Journal, Wiley Blackwell, vol. 18(S1), pages 15-30, July.
    31. Robert Boyer, 2007. "Assessing the impact of fair value upon financial crises," PSE-Ecole d'économie de Paris (Postprint) hal-00812978, HAL.
    32. Guillaume Plantin & Haresh Sapra & Hyun Song Shin, 2008. "Marking‐to‐Market: Panacea or Pandora's Box?," Journal of Accounting Research, Wiley Blackwell, vol. 46(2), pages 435-460, May.
    33. Dickerson, Andrew P & Gibson, Heather D & Tsakalotos, Euclid, 1995. "Short-Termism and Underinvestment: The Influence of Financial Systems," The Manchester School of Economic & Social Studies, University of Manchester, vol. 63(4), pages 351-367, December.
    34. Robert Boyer, 2007. "Assessing the impact of fair value upon financial crises," Post-Print hal-00812978, HAL.
    35. Andrew S. Hilton & Patricia C. O'Brien, 2009. "Inco Ltd.: Market Value, Fair Value, and Management Discretion," Journal of Accounting Research, Wiley Blackwell, vol. 47(1), pages 179-211, March.
    36. Geroski,Paul A. & Gregg,Paul, 1997. "Coping with Recession," Cambridge Books, Cambridge University Press, number 9780521622769, October.
    37. Barron, John M. & Waddell, Glen R., 2003. "Executive rank, pay and project selection," Journal of Financial Economics, Elsevier, vol. 67(2), pages 305-349, February.
    38. Gjesdal, F, 1981. "Accounting For Stewardship," Journal of Accounting Research, Wiley Blackwell, vol. 19(1), pages 208-231.
    39. Graham, John R. & Harvey, Campbell R. & Rajgopal, Shiva, 2005. "The economic implications of corporate financial reporting," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 3-73, December.
    40. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2003. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, edition 1, volume 1, number 2.
    41. William Lazonick, 2007. "The US stock market and the governance of innovative enterprise ," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 16(6), pages 983-1035, December.
    42. Beaver, Wh, 1968. "Information Content Of Annual Earnings Announcements," Journal of Accounting Research, Wiley Blackwell, vol. 6, pages 67-92.
    43. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    44. Yermack, David, 1997. "Good Timing: CEO Stock Option Awards and Company News Announcements," Journal of Finance, American Finance Association, vol. 52(2), pages 449-476, June.
    45. Henry Hansmann & Reinier Kraakman, 2000. "The End Of History For Corporate Law," Yale School of Management Working Papers ysm136, Yale School of Management, revised 01 Feb 2001.
    46. Christian Langmann, 2007. "Stock Market Reaction and Stock Option Plans: Evidence from Germany," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 59(1), pages 85-106, January.
    47. James G. March, 2004. "Parochialism in the Evolution of a Research Community: The Case of Organization Studies," Management and Organization Review, International Association of Chinese Management Research, vol. 1(1), pages 5-22, June.
    48. Phyllis A. Siegel & Donald C. Hambrick, 2005. "Pay Disparities Within Top Management Groups: Evidence of Harmful Effects on Performance of High-Technology Firms," Organization Science, INFORMS, vol. 16(3), pages 259-274, June.
    49. Andres, Christian & Betzer, André & Goergen, Marc & Renneboog, Luc, 2009. "Dividend policy of German firms: A panel data analysis of partial adjustment models," Journal of Empirical Finance, Elsevier, vol. 16(2), pages 175-187, March.
    50. French, Kenneth R., 1980. "Stock returns and the weekend effect," Journal of Financial Economics, Elsevier, vol. 8(1), pages 55-69, March.
    51. Sean D. Campbell, 2005. "Stock market volatility and the Great Moderation," Finance and Economics Discussion Series 2005-47, Board of Governors of the Federal Reserve System (U.S.).
    52. Jon A. Garfinkel & Jonathan Sokobin, 2006. "Volume, Opinion Divergence, and Returns: A Study of Post–Earnings Announcement Drift," Journal of Accounting Research, Wiley Blackwell, vol. 44(1), pages 85-112, March.
    53. Kevin Campbell & Robin Limmack, 1997. "Long-term over-reaction in the UK stock market and size adjustments," Applied Financial Economics, Taylor & Francis Journals, vol. 7(5), pages 537-548.
    54. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2006. "Managerial incentives and risk-taking," Journal of Financial Economics, Elsevier, vol. 79(2), pages 431-468, February.
    55. Ezzamel, Mahmoud & Willmott, Hugh & Worthington, Frank, 2008. "Manufacturing shareholder value: The role of accounting in organizational transformation," Accounting, Organizations and Society, Elsevier, vol. 33(2-3), pages 107-140.
    56. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    57. Hyman P. Minsky, 1992. "The Financial Instability Hypothesis," Economics Working Paper Archive wp_74, Levy Economics Institute.
    58. Coles, Jeffrey L. & Hertzel, Michael & Kalpathy, Swaminathan, 2006. "Earnings management around employee stock option reissues," Journal of Accounting and Economics, Elsevier, vol. 41(1-2), pages 173-200, April.
    59. Joseph Fuller & Michael C. Jensen, 2010. "Just Say No to Wall Street: Putting a Stop to the Earnings Game," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 59-63, January.
    60. Citanna, Alessandro & Villanacci, Antonio, 2000. "Existence and regularity of partially revealing rational expectations equilibrium in finite economies," Journal of Mathematical Economics, Elsevier, vol. 34(1), pages 1-26, August.
    61. Caspar Rose & Carsten Mejer, 2003. "The Danish Corporate Governance System: from stakeholder orientation towards shareholder value," Corporate Governance: An International Review, Wiley Blackwell, vol. 11(4), pages 335-344, October.
    62. Gary C. Biddle & Robert M. Bowen & James S. Wallace, 1999. "Evidence On Eva," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(2), pages 69-79, June.
    63. Ray Barrell & Ian Hurst & Simon Kirby, 2008. "Financial Crises, Regulation and Growth," National Institute Economic Review, National Institute of Economic and Social Research, vol. 206(1), pages 56-65, October.
    64. McSweeney, Brendan, 2000. "Looking forward to the past," Accounting, Organizations and Society, Elsevier, vol. 25(8), pages 767-786, November.
    65. Fligstein, Neil & Choo, Jennifer, 2005. "Law and Corporate Governance," Institute for Research on Labor and Employment, Working Paper Series qt6nt8622j, Institute of Industrial Relations, UC Berkeley.
    66. Corbett, Jenny & Jenkinson, Tim, 1997. "How Is Investment Financed? A Study of Germany, Japan, the United Kingdom and the United States," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(0), pages 69-93, Supplemen.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michael Dempsey, 2015. "Stock Markets, Investments and Corporate Behavior:A Conceptual Framework of Understanding," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number p1007, August.
    2. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, January.
    3. Bushman, Robert M. & Smith, Abbie J., 2001. "Financial accounting information and corporate governance," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 237-333, December.
    4. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.
    5. Julan Du & Charles Ka Yui Leung & Derek Chu, 2014. "Return Enhancing, Cash-rich or simply Empire-Building? An Empirical Investigation of Corporate Real Estate Holdings," International Real Estate Review, Global Social Science Institute, vol. 17(3), pages 301-357.
    6. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.
    7. Ciaran Driver & Maria João Coelho Guedes, 2017. "R&D and CEO departure date: do financial incentives make CEOs more opportunistic?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 26(5), pages 801-820.
    8. Honoré, Florence & Munari, Federico & van Pottelsberghe de La Potterie, Bruno, 2015. "Corporate governance practices and companies’ R&D intensity: Evidence from European countries," Research Policy, Elsevier, vol. 44(2), pages 533-543.
    9. Malmendier, Ulrike & Tate, Geoffrey, 2008. "Who makes acquisitions? CEO overconfidence and the market's reaction," Journal of Financial Economics, Elsevier, vol. 89(1), pages 20-43, July.
    10. Jincheol Bae & Jaehong Lee & Eunsoo Kim, 2019. "Does Fixed Asset Revaluation Build Trust between Management and Investors?," Sustainability, MDPI, vol. 11(13), pages 1-22, July.
    11. Agarwal, Vikas & Daniel, Naveen D. & Naik, Narayan Y., 2009. "Role of managerial incentives and discretion in hedge fund performance," CFR Working Papers 04-04, University of Cologne, Centre for Financial Research (CFR).
    12. Carola Frydman & Dirk Jenter, 2010. "CEO Compensation," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 75-102, December.
    13. Antonczyk, Ron Christian & Salzmann, Astrid Juliane, 2014. "Overconfidence and optimism: The effect of national culture on capital structure," Research in International Business and Finance, Elsevier, vol. 31(C), pages 132-151.
    14. Muurling, Rutger & Lehnert, Thorsten, 2004. "Option-based compensation: a survey," The International Journal of Accounting, Elsevier, vol. 39(4), pages 365-401.
    15. Yaowen Shan & Terry Walter, 2016. "Towards a Set of Design Principles for Executive Compensation Contracts," Abacus, Accounting Foundation, University of Sydney, vol. 52(4), pages 619-684, December.
    16. Ferreira, Daniel & Athanasakou, Vasiliki & Goh, Lisa, 2017. "Changes in CEO Stock Option Grants: A Look at the Numbers," CEPR Discussion Papers 12318, C.E.P.R. Discussion Papers.
    17. Hou, Wanrong & Li, Sali & Priem, Richard L., 2013. "How do CEOs matter? The moderating effects of CEO compensation and tenure on equity ownership in international joint ventures," Journal of International Management, Elsevier, vol. 19(2), pages 138-151.
    18. Athanasakou, Vasiliki & Ferreira, Daniel & Goh, Lisa, 2022. "Changes in CEO stock option grants: A look at the numbers," Journal of Corporate Finance, Elsevier, vol. 75(C).
    19. Laux, Christian & Leuz, Christian, 2009. "The crisis of fair-value accounting: Making sense of the recent debate," Accounting, Organizations and Society, Elsevier, vol. 34(6-7), pages 826-834, August.
    20. Ljungqvist, Alexander & Asker, John & Farre-Mensa, Joan, 2010. "Does the Stock Market Harm Investment Incentives?," CEPR Discussion Papers 7857, C.E.P.R. Discussion Papers.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:aosoci:v:34:y:2009:i:6-7:p:835-848. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/aos .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.