How and why did regulatory governance fail finance company directors in New Zealand?

Abstract

Purpose The theory of economic regulation is used to ascertain how and why the failure of regulatory governance in New Zealand contributed to investor losses of $8.5bn following the collapse of more than 60 public finance companies since 2006. Design/methodology/approach Relevant documents in the public domain, including government documents, government agency reports, newspaper articles, business journals, academic journals and trade publications were examined to gather evidence for this study. Findings This study found that the regulatory and supervisory framework failed to provide the trustee companies with the necessary enforcement powers and/or responsibilities and ensure effective auditor performance. Practical implications The findings suggest that, segmenting the market with different regulations for each market segment may discourage competition and may protect private interests rather than the public interest. It was also found that the control mechanisms for monitoring auditor performance are detective rather than preventive in nature which means investor losses from poor auditor performance can only be mitigated and not prevented. Originality/value This study analyses the contributing factors to the investor losses.