An interview with the School of Accountancy’s Most Promising Researcher – Assistant Professor Tharindra Ranasinghe

Assistant Professor Tharindra Ranasinghe received his PhD in Business Administration from the Bauer College of Business, University of Houston in 2012. As a young faculty at the SMU’s School of Accountancy, he is mostly interested in investigating the effectiveness and unintended consequences of financial and reporting regulations. He also conducts empirical research related to the role of information intermediaries in capital markets and the use and abuse of derivative instruments.

The Office of Research recently conducted an interview with Tharindra. He shared his passion for research with us.

Tell us about your research. What are some current research projects you are working on.

I do not have a dogmatic stand on whether regulations are good or bad. I believe that carefully designed and effectively implemented regulations are good for the society but poorly constructed regulations are worse than no regulation at all. Hence, as researchers, it is up to us to figure out which is which and inform the public debate.

For instance, in one of my current research projects, I investigate whether the US regulations aimed at mitigating the conflicts of interest faced by financial analysts due to their investment banking affiliations have been effective. My findings indicate them to be so, as I find that stock liquidity improvements due to analysts’ coverage initiations are greater in post regulation periods.

On the other hand, in another project where I examine whether not-for-profit sector governance regulations introduced by the State of California has been effective in addressing concerns over excessive executive pay in non-profits, I find the regulation to be rather ineffective. In fact, after the regulation, CEO compensation went up for California non-profits more than it did for similar firms in states without such regulations.

In terms of research related to derivative instruments, I am currently investigating whether firms use derivative instruments to alleviate under-investment problems they face due to capital market frictions or to promote over-investment for empire building by managers. The results seem to indicate that the latter case is more prominent than the former, but it also appears that the nature of the firm’s information environment plays an important role in this relation.

What excites you about this?

These days we see a lot of uncertainty and turmoil, be it in companies, financial markets, or the society in general.  We also see many recommendations that come up to solve today’s problems are at polar opposites. For instance, some argue higher taxes and greater regulatory oversight is required to address the growing problem of income inequality. Others point out that such an approach will stifle innovation and entrepreneurial spirit leading to further economic stagnation. Hence, the latter proposes further deregulation and lower taxes. Some argue that firms need to further expand their financial disclosures. Others believe the reporting requirements are already too onerous and lead to information overload. I think these are issues where there is no one right answer. The more appropriate approach will depend on the specific elements of each individual issue and the suggested solution.

In this context, as a researcher, I am very excited about the fact that we can potentially play an important role in figuring out what works where. What are the conditions that make a particular solution work in one place but not in another? How a successful solution can be tweaked in order to be adopted somewhere else? Or was that solution really successful to begin with? I think trying to find answers to these questions in every single issue confronting our society – no matter how miniscule it may be – is essential for our progress. I am glad that as a researcher I am in a position to address at least a tiny fraction of these issues.