In many ways, this Blog has an almost unlimited number of possible topics. Governance can encompass anything from Delaware court decisions to the merger between the NYSE and Euronext to the SEC’s role in the election of corporate directors.
Today, though, we review some recent articles on the impact of SOX on the international competitiveness of US financial markets. It is one of two popular themes used by opponents of SOX (the costs of Section 404 the other). And, as is often the case in the debate, opponents of SOX overstate the “facts” or ignore contrary evidence. Here are some examples.
Some attempt to show a decline in competitiveness by pointing to a drop in the number of IPOs conducted in the United States and claim that SOX is the cause. In fact, the decline occurred before the adoption of SOX, with the percentage actually increasing since then. These statistics are discussed here. What about the increase in listings at the London Stock Exchange? Has this come at the expense of US markets? The growth has been almost entirely in the Alternative Investment Market (AIM), a place with light regulation that allows for the listing of smaller, less financially sound companies. The consequence? “Some 52 per cent of those that joined London 's junior market [AIM] in the three years to December 31, 2006, are either trading at or below their issue price, or have had their shares suspended.” Not exactly a ringing endorsement from the London Times.
SOX promotes a race to the top. It is higher standards that will induce companies to list in the US. Why? Meeting tougher standards in the US results in an increse in share prices in their home market. See the Valuation Premium Study for more on this. So the statistics tell us. And, as we all know, statistics do not lie.