THE HIGH COST OF SARBANES-OXLEY
April 17, 2007
Since its enactment in 2002 following the Enron scandal, the Sarbanes-Oxley Act has become a costly albatross around the necks of American corporations, says Investor's Business Daily (IBD).
Our biggest public companies see the regulatory costs of doing business in our markets soaring, without many offsetting benefits, says IBD:
- Estimates for total costs, including stock market losses, have been put as high as $1.4 trillion for U.S. business.
- A study by Deloitte two years ago put the cost at $2.4 million a year per company to comply with the Act -- a big hit for corporate America and for Wall Street.
Sarbanes-Oxley is also affecting U.S. markets. According to the Committee on Capital Markets Regulation (CCMR):
- In 2000, U.S. markets accounted for 50 percent of initial public offerings, by dollar value.
- By 2005, in the wake of 2002's Sarbanes-Oxley Act and a new era of oversight of public firms, that had shrunk to a pitiful 5 percent of the total.
That doesn't mean U.S. markets are dead, says IBD. Private-equity firms are booming, since they offer a way to take part in U.S. markets and the U.S. economy without having to live under our onerous regulations. Indeed, as the CCMR report noted, in 2005 foreign companies raised $53.2 billion in U.S. private equity placements, more than 10 times the amount they raised in U.S. public markets.
But some in Congress want to slap more regulations and higher taxes on those that invest in private-equity deals. But recent deals show private equity isn't the problem, says IBD. Simply put, these companies can no longer realize their full market value in our public markets, thanks to our regulatory regime and the threat of litigation.
Source: Editorial, "The High Cost of Sarbanes-Oxley," Investor's Business Daily, April 17, 2007.
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