Stigmata: The Stain of Sarbanes-Oxley on U.S. Capital Markets

58 Pages Posted: 14 Sep 2006 Last revised: 24 Apr 2009

See all articles by Gregory C. Leon

Gregory C. Leon

George Washington University Law School

Date Written: November 8, 2006

Abstract

In response to the dramatic fall of corporate icons such as Enron and other U.S. companies, Congress promulgated the Sarbanes-Oxley Act of 2002 ("SOX"). In doing so, Congress triggered a chain reaction that has negatively impacted U.S. equity markets and changed the face of capital raising throughout the world. SOX has not only taxed U.S. businesses it has tarnished the face of U.S. equity markets. This paper demonstrates through a statistical analysis of global IPO data that the U.S. equity markets have indeed suffered from the implementation of SOX. In addition, this paper found a palpable increase in non-domestic capital raising in locations such as London and Hong Kong. This paper further isolated the role of Chinese IPOs in the global IPO market. Jockeying for Chinese IPOs has increased the competitiveness of the foreign IPO market and raised the stakes in regulation of exchanges. SOX has reduced demand for U.S. equity market participation by foreign companies and threatens the competitiveness of U.S. markets. U.S. capital markets no longer dominate the foreign IPO arena. Regional exchanges have grown in market capitalization and reduced the importance of the U.S. markets. Foreign companies seeking to raise capital should be aware of the shift in the global capital markets but also note the advantages of offering securities on foreign exchanges despite the regulatory hurdles. Finally, this paper acknowledges the upswing in regulatory efforts in the U.S. markets and offers an alternative path to regulation in its current form that may partially restore the attraction of U.S. markets to foreign issuers.

[White paper dated as of Nov. 2006]

NOTE: Published version: Duquesne Business Law Journal vol. 9 p. 126 (2007). My follow-up to this paper analyzing additional IPO data, etc was cut short by the credit crunch.

Keywords: Sarbanes-Oxley Act, SOX, Corporate Governance, Foreign, Initial Public Offering, IPO, Corporate, Foreign Issuer, SEC, NYSE, NASDAQ, AIM, London, Hong Kong, Singapore, China, Section 404, Market Capitalization, Accounting, Financial Disclosure, Reporting, Certification, Exchange Act of 1934

JEL Classification: G15, K22

Suggested Citation

Leon, Gregory C., Stigmata: The Stain of Sarbanes-Oxley on U.S. Capital Markets (November 8, 2006). GWU Law School Public Law Research Paper No. 224, GWU Legal Studies Research Paper No. 224, Duquesne Business Law Journal vol. 9 p. 126 (2007), Available at SSRN: https://ssrn.com/abstract=921394 or http://dx.doi.org/10.2139/ssrn.921394

Gregory C. Leon (Contact Author)

George Washington University Law School ( email )

Washington, DC 20052
United States

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