27 April 2007

Study: Has New York become less competitive in global markets?

A study undertaken by three US University Professors reveals that there is no evidence the Sarbanes-Oxley Act increased London's appeal to foreign companies at New York's expense. The researchers studied the determinants and consequences of cross-listings on the New York and London stock exchanges, showing that there is no deficit in cross-listing counts on U.S. exchanges related to SOX.

The study finds that cross-listings have been falling on U.S. exchanges as well as on the Main Market in London. This decline in cross-listings is explained by changes in firm characteristics rather than by changes in the benefits of cross-listings.

The researchers also say the decline in new foreign listings on U.S. stock markets since 2001 isn't due to regulatory overkill. Rather, today there are simply fewer foreign companies that fit the historic profile for listing abroad.

“Our evidence is consistent with the theory that an exchange listing in New York has unique governance benefits for foreign firms.” The authors state. “These benefits have not been seriously eroded by SOX and cannot be replicated through a London listing.”

In an interview, Mr. Karolyi said he doesn't question the merits of revisiting the U.S. regulatory burden. But he cautioned against a 'rush to judgment. ...' ... He said [the] findings suggest policy makers should be cautious about easing oversight of foreign companies in the U.S.

Mr Karolyi said: 'There are already steps being taken to dismantle, ease and make exemptions to Sarbanes-Oxley. But there is a valuation premium to a company listed in the US that is a reward for the higher scrutiny and corporate governance standards. The worry is we may end up throwing away the franchise value and the NYSE's blue ribbon status.”

Study

© Graham Bishop