By James Hamilton, J.D., LL.M.
I have been discussing on the blog the great macro issue of whether the costs of the Sarbanes-Oxley Act, particularly Section 404 internal control mandates, are chilling foreign companies from listing on US exchanges. I believe that to some extent Sarbanes-Oxley has caused capital to stay away from US exchanges. But, in fairness, I want to discuss recent remarks made in Brazil by PCAOB Member Charles Niemeier disputing the view that burdensome US regulation is discouraging companies from entering the US capital markets. According to the Board Member, there is no evidence that the cost of maintaining a US listing exceeds the premium companies enjoy on a US market. Rather, the facts appear to confirm the continued attraction of US markets due to the significant valuation premium for companies that can meet the requirements of a US listing, which the NYSE has estimated at 30 percent.
The Member also observed that, despite the significant US valuation premium, companies will still list locally due to political and cultural factors. In this regard, the noted that the top five IPOs in 2005 were privatizations of state-owned entities in China and France which, not surprisingly, listed on the Hong Kong and Euronext markets. In the Member’s view, it is doubtful that weaker disclosure and corporate governance requirements would have attracted these IPOs to US markets. My comment is how can the Member know this since you cannot prove a negative. In addition, the Member does not address the fact that the increasingly growing number of foreign private issuers peaked around 2002 and has been flat ever since. Is it just a coincidence that Sarbanes-Oxley was passed in 2002?