Has Sarbanes-Oxley Pushed IPOs Offshore?
The legislation of Sarbanes-Oxley Act was received with a mixed a reaction in both the public and privately owned enterprises. One major concern that has been raised is the reason behind the shift by most companies in London to go public. The point of contention between the developers of this Act and business people remains the tight regulations following the global financial crisis, which ushered in a brand-new era of regulation.
Whereas I agree with the investors’ actions to explore the advantages of Alternative Investment Market sponsored by the London Stock Exchange, there is more to the issue than can be easily adjudged. The abidance in the actions of the investors in based on the need to reduce the high costs of compliance brought by the legislation of Sarbanes-Oxley Act. According to Farris (2009)”public company compliance costs can range from $1.0 million to over $3.0 million annually even for small company in that the more troubled the issuer, the more burdensome public company status can become as a company spends a greater proportion of its diminishing resources dealing with difficult disclosure and accounting questions.”
In addition to the above, the Farris (2009) illustrates that “the 2008-2009 stock market crash and current deep recession are causing many small public companies to reexamine the costs and benefits of remaining listed on a national securities exchange and continuing as a public reporting company under the Securities Exchange Act of 1934 (the Exchange Act).” This has also been precipitated by the decline in the stock market capitalization in the recent past. Increase in compliance costs related to the reporting impacts negatively on the capital base of these companies. In conclusion, to leverage on rising costs of compliance, increase the bottom-line and remain competitive, these companies have been pushed to explore Alternative Investment Market.