Case study: Bridging the gap

A new financial research centre at AUT aims to strengthen ties between academics and industry.

​Many fields, from medicine and biotechnology to engineering and even conservation, are conducive to collaboration between academics and industry, using their respective strengths and skills to help grow our knowledge economy.

But Dr Bart Frijns, Professor of Finance at the AUT Business School, feels his discipline is missing out on the mutual benefits of such a relationship. Unlike in other countries, he says there seems to be little interaction between finance academics and what happens in the New Zealand finance industry. As director of the new Auckland Centre for Financial Research, he’s working to change this.

The Centre was launched in September 2012 with two main objectives: to promote high-quality academic research in the area of finance, and to make this research more relevant for industry and regulators.

“We’ve put some initiatives in place to target these things,” Dr Frijns says. “We’re getting really good quality international researchers on board, we’ve published the first issue of our Applied Finance Letters journal, which presents academic research in a way that’s relevant to finance professionals, and we’ve also hosted a number of successful symposia and conferences.”

The most recent of these was the inaugural New Zealand Capital Markets Symposium in May. It brought together finance academics, leading local practitioners and policymakers (including keynote speaker Tim Bennett, CEO of NZX, and Sue Brown, the FMA’s Head of Primary Regulatory Operations) to discuss our capital market and the role academic research plays in its development.

“Having these discussions is mutually beneficial,” says Dr Frijns. “Practitioners and policymakers may learn from the research we engage in, and we as academics may learn from industry-relevant issues.

“We had some excellent discussions on the type of studies we can do into the New Zealand capital market to help the local industry. Academics from around the country also shared their latest research and sought industry feedback. The response from both groups was really positive.”

The Institute for Financial Professionals New Zealand (INFINZ) partnered with the Centre to help promote the symposium, and Dr Frijns would like to encourage more collaboration of this kind.

“It’s important. We have great expertise and skills,” he says. “In countries such as Holland and Australia, professors are seen as industry experts, and organisations approach universities for help with issues they have. Many people have joint appointments, working for a large investment company and taking a chair at a university. Investment companies and venture funds also jointly sponsor PhDs when they have a need for specific research.”

Dr Frijns stresses that his intention is not just about getting money for New Zealand academics to do research – it’s about industry being involved, sharing ideas, and having input into how their future leaders are being educated.

“It’s fine for academics to do things purely for intellectual purposes, but it’s also good for us to have a bit of a reality check. If we’re looking at all these issues and someone says, ‘There are actually more important things to figure out’, then perhaps we should focus our attention on those things.”

Among the Centre’s recent research is a study of the relationship between financial literacy and decision making, which has implications for lending institutions, government and schools.

“Worldwide, financial literacy is very low. People are making decisions about investing, mortgages, personal loans and credit cards, but they lack the knowledge to make good decisions. They don’t understand how interest rates work, yet they’re being asked to make decisions about things like KiwiSaver or IPOs. If they don’t understand financial risk and returns, how can they make an informed decision?

“People who know more about finance make better decisions, but how does the causality run? Is it the financial knowledge that people have acquired that makes them make better decisions? Or is it the decision-making process itself that makes people more financially knowledgeable, as they learn by doing?”

Dr Frijns and his colleagues Dr Alireza Tourani-Rad and Dr Aaron Gilbert found the latter to be true.

“It’s the need to make these decisions that improves people’s financial literacy. If you have to make a decision about KiwiSaver, you look for relevant information and learn about it.

“There are discussions about whether financial literacy should be part of the national curriculum. Our research offers insights into how such programmes should be structured, because it’s clear that people learn best when they apply that learning. If we just teach you about interest rates, risks and diversification, it’ll have very little impact on your subsequent decision-making because you’re learning these things in isolation.”

Instead, Dr Frijns says, educational programmes should be targeted at a time when you need to make a specific decision or they should use practical examples.

“If I want to teach kids about how interest rates work, I could take them to a bank and let them open their own account. I could then teach them about interest rates. They put money in and they’re learning by doing.”