I have determined that this blog will not shrink from discussing the big macro issues of the impact of securities regulation on the financial markets and the movement of capital. And there is no bigger issue in this regard than the growing evidence that the Sarbanes-Oxley Act, and particularly its Sec. 404 internal controls mandates, are chilling foreign private issuers from listing on US exchanges.
The fact is that the number of foreign private issuers peaked at around 1300 just before 2002 and has not moved upward since the passage of Sarbanes-Oxley. In addition, almost all of the recent Chinese company IPOs have listed outside the US, ie in Hong Kong. Also, many European accounting organizations recently rejected the introduction of a European equivalent to Sec. 404 internal controls in favor of an evolutionary principles-based approach. This was in response to a discussion paper issued by the European Federation of Accountants. The Chartered Accountants Institute of Scotland was particularly vocal in stating that it would oppose any movement towards a Sarbanes-Oxley rules-based approach in the European Union. It is no secret that many EU bodies consider Sarbanes-Oxley a prescriptive rules-based regime.
It is time for a public debate on the question of whether the Sarbanes-Oxley Act is indeed chilling the movement of capital into the US. Would this be an unintended consequence of the Act, or one that should have been foreseen. When it comes to global markets, regulation does not operate in a vaccum. Rather, regulation has consequences.