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Beyond the illusion of numbers: A challenge for financial regulators and analysts

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  • Carol Royal
  • Loretta O’Donnell

Abstract

Global financial crises and potential sovereign defaults provide an opportunity for financial regulators and analysts to revise assumptions in their risk models. These conditions are also an opportunity for regulators and analysts to distinguish the ‘hyper-real’ economy, represented by derivatives, from the real economy, which requires assessment through an analysis of human as well as financial capital. Regulators are required to demonstrate that they are skilled in conducting the most thorough analysis of all elements of the finance system in order to help the investing public to manage risk as much as possible. The contribution of this article is to overview the limitations inherent in regulators’ traditional focus on financial analysis, as well as in financial analysts’ failure to consider the relevance of people management data when evaluating the potential performance of knowledge-intensive, service-based organisations. The article argues for a stronger focus on analysis of non-financial capital, including human capital, to provide a more effective ‘early warning’ of potential financial distress.

Suggested Citation

  • Carol Royal & Loretta O’Donnell, 2013. "Beyond the illusion of numbers: A challenge for financial regulators and analysts," The Economic and Labour Relations Review, , vol. 24(4), pages 568-583, December.
    • Handle: RePEc:sae:ecolab:v:24:y:2013:i:4:p:568-583
    DOI: 10.1177/1035304613509034
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    References listed on IDEAS

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    Cited by:

    1. Othmar M. Lehner, 2014. "Finance, risk and accounting perspectives," Venture Capital, Taylor & Francis Journals, vol. 16(3), pages 185-188, July.

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    More about this item

    Keywords

    Financial analysis; financial regulation; global financial crisis; human capital; management systems; risk;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G1 - Financial Economics - - General Financial Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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