Question

What are the consequences of the SEC's overall behavior for the investors and other stakeholders

Answer 1

SEC Rules createdto regulate capital markets and take care of the 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.

EFFECTS ON INVESTORS:

1. SEC rules aim to protect investors by requiring the issuers to use mandated services like the certain vendor services like the credit rating services, proxy delivery services, independent audit services, and othersin order to effectively create a new market. The effect of this is that some issuers might not feel that their private benefits of purchasing such services as compensating or justifying their compliance costs
2. SEC’s regulation may benefit shareholders by protecting them from fraud or misinformation, the cost of complying with regulation also affects the firm’s profit. Thus, a cost-benefit analysis from the perspective of investor welfare would focus on understanding whether the total value provided to the investors of availing these services is justified by the aggregate prices charged by the vendors.
3. SEC’s rules would also have an effect on other factors like the economic profits or increased producer surplus or additional jobs created in the service industry, at the cost or expense of investors

EFFECT ON MANAGERS:

1. One of the consequences of the SEC’s behavior for the stakeholders is in the form of the SEC’s executive compensation regulation wherein the executive compensations are regulated by disclosure norms and not as per prescribed limits. This behavior of Sec regulating the executive compensations was initiated in order to address the issue of their payments being excessive.concern that CEO pay has become “excessive
2. Another initiative of the SEC to reduce managerial surplus for the purpose of increasing investor welfare was not well received by the managerial stakeholders unless it has the effect of increasing the overall pie it wouldn’t work effectively towards increasing the investor’s welfare.