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

Published online by Cambridge University Press:  01 January 2023

Carol Royal  and
Loretta O’Donnell
Carol Royal*
Affiliation:
School of Management and Industrial Relations Research Centre, Australian School of Business, The University of New South Wales, Australia
Loretta O’Donnell
Affiliation:
School of Management and Industrial Relations Research Centre, Australian School of Business, The University of New South Wales, Australia
*
Carol Royal, Honorary Visiting Fellow, Cass Business School, City University London, UK, and School of Management and Industrial Relations Research Centre, Australian School of Business, The University of New South Wales, Sydney, NSW 2062, Australia. Email: c.royal@unsw.edu.au
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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.

Keywords

G01G1G3O15O16Financial analysisfinancial regulationglobal financial crisishuman capitalmanagement systemsrisk
Type
Non-Symposium Article
Information
The Economic and Labour Relations Review , Volume 24 , Issue 4: Symposium - The East Asian Developmental State , December 2013 , pp. 568 - 583
Copyright
Copyright © The Author(s) 2013

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