SARBANES-OXLEY: SERIOUSLY MISCONCEIVED
August 10, 2005
Given the state of the economy and relatively robust corporate profits, one would expect the stock market to be higher. One factor may be the Sarbanes-Oxley legislation, enacted in 2002 as a knee-jerk reaction to the corporate scandals of Enron, WorldCom and others, says Bruce Bartlett, a senior fellow with the National Center for Policy Analysis.
Estimates of the cost of the legislation in terms of higher audit fees and lost productivity have risen every year, as companies learn more about how its provisions.
- It is now commonly estimated to be about $15 billion per year, or about $1 million per $1 billion of sales.
- AIG, the big insurance company, has said that it is spending $300 million per year on Sarbanes-Oxley compliance.
Two University of Illinois accounting professors estimated last year that companies had spent 120 million hours complying with Sarbanes-Oxley and that outside auditors had spent another 12 million hours, for a total of 132 million hours. This is equivalent to 66,000 people working for one year on nothing else.
Economist Ivy Zhang found that passage of the bill wiped out $1 trillion of market capitalization. Moreover, Zhang found no economic benefits to the legislation whatsoever, a view echoed by other analysts such as UCLA securities law professor Stephen Bainbridge.
Columnist Robert Novak reports that Bush Administration officials are well aware of the negative effects of Sarbanes-Oxley on the economy and the stock market, but will not do anything about it -- a view recently reiterated by the law's coauthor, Rep. Michael Oxley (R-Ohio). They would rather see businesses and investors continue to suffer than admit the possibility of error, says Bartlett.
Source: Bruce Bartlett, "Sarbanes-Oxley: Seriously Misconceived," National Center for Policy Analysis, August 10, 2005; Ivy Xiying Zhang, "Economic Consequences of the Sarbanes-Oxley Act of 2002," AEI-Brookings Joint Center for Regulatory Studies, June 2005; Stephen M. Bainbridge, "Does the SEC Know When Enough is Enough?" Tech Central Station, January 8, 2004; and Robert Novak, "Threat of the auditors," Townhall.com, April 7, 2005.
For Bainbridge text:
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