Cost-benefit analysis for the capital markets regulations: theories, tools and an empirical study on turkey

Regulation is one of the most important tools for government to achieve its social and economic policy objectives. Since it has a great impact on social and economic life of a country, regulation has been an area of political debate and economic research in every country. According to the prevalent view in recent years, costs arising from regulation has reached high levels and, therefore, implementing a cost-benefit analysis has become crucial. Countries? experiences seem to indicate that only when the regulatory system is appropriately designed, the goals expected from regulating can be achieved and costs of regulation can be minimized. Three subjects have been accentuated in this study. Firstly, current regulatory system in Turkey has been analyzed. It is conceived that even though Turkey?s regulatory environment has significantly changed mainly due to the pressures of international organizations and financial crisis, it still has important weaknesses. Secondly, Turkish capital markets and the regulatory system of these markets have been evaluated in terms of regulation purposes, designing of regulatory institutions, process of regulating, intelligibility, accessibility of regulations and regulation systematic, power to enforce and audit, harmonization to the EU acquis and transaction costs, covering the past 25 year period. Evaluation results indicate that our country?s capital markets are problematic in many ways. Thirdly, by using the standard cost method, administrative costs (compliance costs) on Turkish capital markets sector arising from the capital markets legislation have been measured. 335 listed companies, 275 publicly held companies whose shares are not listed, 104 brokerage houses and 341 mutual funds have been taken into the scope of this study. The data set used in measurement has been gathered from 43 sample institutions which are representative of these sectors by using questionnaires. Four important conclusions emerged from this study. First point, the sector?s compliance costs as of 2007 have been estimated to be 236 million US dollars. Second point, regulations have been burdensome on brokerage houses the most. Third point, the thesis which states that costs of compliance to capital market legislation is an obstacle for companies to go public, is not valid. Last point, it has been demonstrated that, by means of simplification and amendment studies proposed during the measurement of costs, it is possible to reduce administrative costs by %9 in the short term. These conclusions suggest that regulatory authorities such as CMB and BRSA should focus more on cost-benefit analysis and reduction of administrative costs.