The Effectiveness of Regulatory Reforms in Enhancing Audit Transparency and Market Confidence

Posted: May 21, 2024

• Liam Rivera
• Rowan Bishop
• Ella Gibson

Abstract

The global financial landscape has witnessed an unprecedented proliferation of regulatory reforms aimed at enhancing audit transparency and restoring market confidence following major corporate scandals and financial crises. Traditional approaches to evaluating these reforms have predominantly relied on conventional financial metrics, survey-based measures of investor sentiment, and event study methodologies. However, these approaches often fail to capture the nuanced and multi-dimensional nature of transparency and its complex relationship with market confidence. This research introduces a novel computational framework that addresses these limitations by integrating advanced text analytics, network theory, and machine learning to provide a more comprehensive assessment of regulatory effectiveness. Our research is motivated by several critical gaps in the existing literature. First, current evaluations of regulatory reforms tend to focus on immediate market reactions rather than long-term structural changes in information environments. Second, traditional measures of transparency often conflate quantity of disclosure with quality of communication. Third, there is limited understanding of how different types of transparency interact and collectively influence market confidence. Finally, existing research rarely considers the potential unintended consequences of transparency mandates, such as information overload or strategic obfuscation.