Evidence-Based Policymaking: Promise, Challenges and Opportunities for Accounting and Financial Markets Research
Evidence-based policymaking is a rigorous attempt to base policy decisions (e.g., new regulation) on scientific and empirical evidence, including impact studies, cost-benefit analyses, program evaluation, etc. It broadly captures the idea that science and empirical evidence are used rigorously and comprehensively to inform policy decisions. This idea is very appealing. Policymaking based on empirical evidence and sound theory should lead to better policies: research can provide empirical facts and relations; evidence-based policies are likely more resilient to political pressure and it is a way through which publicly funded research can contribute to society. Given these arguments, policymakers, regulators and standard setters, including accounting, auditing and financial regulators, are increasingly under pressure to undertake this approach. However, despite its promise, evidence-based policymaking presents several challenges both in terms of how to produce quality research that can support and inform policymaking; but also in terms of how research results are communicated to, and used by, policymakers.
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. I start with reflecting upon the contributions of accounting and financial markets research to policy making. Next, I point to new research opportunities. I discuss 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.
We are still a long way from evidence-based policy making for accounting standards or financial regulation and we therefore need to temper our expectations. The aim should probably be a more modest evidence-informed policy making. In my mind, the glass is nevertheless half-full. But we need substantial investments into the research infrastructure. The risk is otherwise that we simply pay lip service to the idea and not achieve its goals.