April 27, 2007
A new study by Karolyi, Stulz & Doidge, which Professor Stulz has hinted was coming for some time, documents that the Sarbanes-Oxley Act of 2002 does not adversely affect the appeal of United States stock markets to foreign company seeking to list shares. United States listings still offer substantial cross-listing premiums on stock prices (due, in theory, to superior regulation) and London listings do not. The decline in the number of listings in the United States after 2002 is due to the fewer number of companies that are eligible to be listed, not the Act they argue. There is some contrary evidence; the explosion of our Rule 144A market in foreign stocks (an exempted offering) and the success of the Toronto and London AIM small offering markets as compared to our own small offering markets. There is also an alternative theory: We have established a very high standard of reporting that only very large, well run companies can use as a "seal of approval." It makes sense for them to do so; smaller and medium companies with more average business practices no longer find is sensible to incur the high costs of using the "seal." At issue is whether we should apply a top "seal of approval" system to all our companies. Is the growth of small and medium companies too hindered by such a requirement?
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