Blockchain – a new accounting paradigm : Implications for credit risk management
Abstract: Blockchain technology and its numerous applications have become a major catalyst of new ideas and solutions for the financial sector. A headline containing the word “blockchain” attracts tons of attention from the media and new start-ups developing something in blockchain receive huge investments. But the theoretical framework for blockchain even for financial industry remains raw and empirical evidence is insufficient. In this study, we explore the theoretical framework for blockchain applications in accounting, identify the core benefits and downside, and discuss its implications for auditing and accounting in general and for credit risk management in particular. The research methodology of this study is designed to satisfy objectivist ontological position and positivist epistemological stance as the notion researched is considered to be primarily external to affected social actors, consequently the quantitative methods are used to establish the relationships between the variables, in turn the variables are produced by a deductive approach from general theories and ideas which exist in abundance in the area but lack empirical observations. A case study was consequently chosen as a research strategy to add a real-life touch to our statistical modelling. In the case study where we use financial data of Ericsson corporation to model theoretical effects of blockchain accounting on credit scores measures we add an empirical dimension to the research in a real-life context. Then we discuss the findings and try to draw general conclusions and identify consequences of the results for different affected parties. As it is always important to do when dealing with new technologies we discuss potential ethical advantages and issues resulting from the technology’s implementation. The study aims to review the current theoretical framework for blockchain accounting in a coherent way as the current literature seems to be disjointed and multiple sources doesn’t focus solely on accounting applications. The empirical study aims to identify a measurable material effect on a very specific problem of credit risk modelling under a broader blockchain accounting paradigm. There are two primarily findings of the research. Fist is the fact that the potential material effect of blockchain accounting on credit scores measures is confined within boundaries of actual volatility of quarterly credit scores and thus the technology will have larger implications for companies with high volatility of credit measures. The second finding is that the implications will be not solely positive in the form earlier identification of financial distress and quicker reaction to resolve the troubles but also may affect the company negatively by exacerbating the economic short-termism problem, the problem that hasn’t been discussed in connection with blockchain accounting before.
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