SEC Rules, Stakeholder Interests, and Cost-Benefit Analysis
Capital Markets Law Journal, Vol. 10, No.3 (2015)
14 Pages Posted: 23 Dec 2014 Last revised: 18 Jun 2015
Date Written: November 20, 2014
Rules designed to regulate capital markets and protect investors often have spillover effects, either negative or positive, on stakeholders other than investors. These stakeholders can include managers, employees, consumers, taxpayers, gatekeepers, vendors, and others. This raises a question as to whether cost-benefit analyses of such investor protection rules -- to the extent that the regulator is expected to conduct them -- should take account of these spillover effects. One dilemma is that a rule may potentially be net beneficial to investors while net costly to society at large, or alternatively, it may be net beneficial to society at large but net costly to investors. An examination of several SEC rules indeed suggests that this type of discrepancy can indeed arise routinely. Therefore, current calls in the U.S. to have the SEC conduct more rigorous cost-benefit analyses of its rules should be preceded by a more candid discussion as to the appropriate criterion for determining the efficiency of SEC rules.
Note: This article has been accepted for publication in the Capital Markets Law Journal published by Oxford University Press. This is a pre-publication version of the article. The published version will be accessible at the Oxford Journals website.
Keywords: Cost-benefit analysis, securities regulation, Circular A-4, total surplus, investor welfare, efficiency, Securities and Exchange Commission, Sarbanes-Oxley Act, proxy access, executive compensation, Business Roundtable, Financial Regulatory Responsibility Act, Independent Regulatory Analysis Act
JEL Classification: D43, D50, D60, D61, G1, G14, G28, K2, K22, K23, L1, L5, L51
Suggested Citation: Suggested Citation