New ANU Faculty Dr Hai Wu and Dr Stanley Choi recently presented a RegNet seminar on the effectiveness of responsive regulation in securities regulation and financial crisis prevention. This was research of Choi, Chen, Wright and Wu[1] which set out to test the effectiveness of the construction between 1992 and 2006 of the Australian Securities and Investment Commission’s (ASIC) responsive regulatory pyramid. The Choi et al analysis showed that as successive regulatory crises and law reform surges progressively equipped ASIC with new layers of more varied arrows in its law enforcement quiver, the effectiveness of ASIC enforcement progressively increased.

A difference-in-difference analysis with the impact of New Zealand securities and financial market regulation as a control reinforced this result. From the perspective of Choi et al.’s disciplines of economics and accounting, and their provenance in business schools, they were interested in the effectiveness of securities regulation in making markets more transparent to investors and therefore more efficient and hopefully less prone to artificial bubbles that burst. The ASIC outcome of concern was whether the market was fully informed. Did regulation produce an improved information environment and market liquidity? Hence, Choi et al. measured the impact of the Australian and New Zealand financial disclosure regimes by variables such as reduction in financial analysts’ forecast errors, forecast dispersion, bid-ask spread, and increase in the turnover rate from the market liquidity test.

The size of the ASIC budget and enforcement intensity (measured by prosecution counts) helped analysts to reduce forecast errors for future profits. The responsive regulation effect was even stronger in increasing predictive accuracy over and above those impacts on the integrity of markets. The leverage in the data was formidable, with an Australian sample of 148,498 firm-month observations (with each observation based on the median across a number of analysts) and a New Zealand sample of 116,585.

This study has the strength of a multi-construct multi-method move to a pooled time-series cross-sectional analysis of all major corporations in an economy on an outcome that securities enforcement is designed to deliver, combined with a difference-in-difference analysis of two whole economies. It delivers a larger n of observations than research in the criminological paradigm of deterrence research.

I discuss this study in my comment on an important new meta-analysis on the efficacy of deterrence with corporate crime that will be published next month in Criminology and Public Policy by Nathalie Schell-Busey, Sally Simpson, Melissa Rorie and Mariel Alper. [2]


[1] K.W. Choi, X. M. Chen, S. Wright, and H. Wu. 2016. Responsive Enforcement Strategy and Corporate Compliance with Disclosure Regulation. Working Paper, Macquarie University and Australian National University.

[2] Schell-Busey, Natalie, Sally S. Simpson, Melissa Rorie, and Mariel Alper. 2016. What works? A systematic review of corporate crime deterrenceCriminology & Public Policy 15(2).