Group wants less stringent market rules
Despite these headwinds, one group is continuing its call for the relaxation of rules governing the financial markets.
The Committee on Capital Markets Regulation, a group endorsed by U.S. Treasury Secretary Henry Paulson and funded in part by former AIG chairman Maurice "Hank" Greenberg, has renewed its warning that the United States is losing its pre-eminent spot in global finance.
Citing new evidence that public companies are bypassing New York in favor of London and other money centers, the committee insists that the federal government should lighten the regulatory burden faced by public companies and make it more difficult for investors to harass public companies with lawsuits.
"Things are bad and getting worse," says Hal Scott, a Harvard Law School professor who heads the committee. Trends he blames on the regulatory environment and excessive litigation risk include:
- Foreign companies delisting shares from U.S. exchanges surged from 30 in 2006 to 56 in the first 10 months of 2007.
- In 1996, eight of the 20 largest global initial public offerings were listed on a U.S. exchange. In 2006, one listed here and so far through 2007, not one of the top 20 global IPOs listed in the United States.
- The percentage of U.S. IPOs listing only on a foreign exchange increased from 1.1 percent in 2006 to 4.3 percent so far in 2007.
But corporate governance experts and at least one academic question the validity of Scott's findings.
"You really wonder if this is the time to be calling for significant deregulation," says Andrew Karolyi, a professor of business at Ohio State University. Karolyi has determined that companies listing in the U.S. markets received a significant premium over companies that opted to list their shares overseas.
Karolyi says the number of delistings in 2007 could be attributable to factors beyond a recent Securities and Exchange Commission ruling that made the process of delisting easier. He points out that some deregistrations involve debt, not equity, while others resulted from mergers or acquisitions, where a company listed in the U.S. was taken over by one not listed here.
"The fact remains that the U.S. share of worldwide IPOs has actually increased since the passage of Sarbanes Oxley," says Charles Niemeier, a member of the Public Company Accounting Oversight Board. "Considering what we see happening with subprime, we should be even more wary of arguments that we should do away with regulations."
Nell Minow, editor at The Corporate Library, says Scott's study ignores an important factor in the loss of listings: Investment banking fees on Wall Street are twice as high as the fees paid to go public overseas.
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