Does Resurgent IPO Market Take The Heat Off Of Sarbanes-Oxley?

from the may-i-be-excused? dept

In the recently concluded first quarter, both the NYSE and the NASDAQ saw more IPOs than in any other quarter since the last bubble. All told, 64 companies, including many that are far from profitability, raised $12.1 billion during the period. This stands in stark contrast to the stock market a year ago, which saw relatively few IPOs, despite the fact that there was plenty of activity in terms of startups and young companies. At the time, one of the popular reasons given for the lack of IPOs was the Sarbanes-Oxley “tax”, which was seen as an undue burden on small companies. This view, a popular one among venture capitalists, was bolstered by the fact that a number of companies, which in the past would have probably listed on the NASDAQ, were opting to go public in London, where they could escape Sarbanes-Oxley. Also, the rise of private equity and management-led buyouts gave credence to the idea that Sarbanes-Oxley made it not worthwhile to be public. So, then, does the resurgent IPO market discredit the Sarbanes-Oxley complaints at all? Certainly, Sarbanes-Oxley still represents a significant cost for small companies, and there’s almost no other explanation for why American companies would list in London rather than their home market. But, seeing as the IPO comeback coincides with record highs for the stock market, it would appear that economic cycles must be playing a pretty significant factor. This doesn’t dismiss the Sarbanes-Oxley explanation, but it does suggest that it’s just one of a number of factors, rather than the dominant one.

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Comments on “Does Resurgent IPO Market Take The Heat Off Of Sarbanes-Oxley?”

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IronChef says:

Two Cents

The companies are decide to go public in London are not subject to SOX until the company has something like 10,000 US shareholders, then the company has to, once again, adhere to rules of Sarbanes-Oxley. Some estimates say that SOX can add $2M+ to overhead and operating costs per company.

No wonder why most Consulting and Accounting companys still favor the LLP entity.

You may have already seen this, but have a look

Value Investor says:

SOX prevents fake fraudulant valuations

“Some estimates say that SOX can add $2M+ to overhead and operating costs per company.”

Bullshit. Those operating numbers should already be known within the company. The only difference SOX made is CEO & CFO had to sign on those numbers as true and honest and write 1 document describing how those values were checked as true and honest.

Cost, about $500 1 man day to an honest well run company, about $10 million to a dishonest pumped POS.

If the CEO & CFO won’t sign off the accounts as true and honest, and can’t write a document describing the financial controls in place in the company then they have no business being listed on any stock market in the world.

“No wonder why most Consulting and Accounting companys still favor the LLP entity.”

And investors would rather company accounts were in the ‘fact’ section of the library, not the ‘fiction’ section.

Since when has lying in accounts not been fraud?

jay says:

Big Business thieves?

Thieves…. interesting. Must be a socialist, or perhaps a communist. I have worked for many big businesses. I have worked for many small businesses. The interesting thing is, I have always been paid what I’m worth. When you morons tax a business, who pays the tax? The customer of that business. It is just another hidden tax that morons like the anonymous chickens like you feel good about. Yeah! Stick it to big business! Whoopee! That’ll show them. When all it does is make the customers… likely you, pay more for goods just to give BIG BROTHER the government more of your money to squander. We have all seen how good government is at spending our money.

Chris Maresca (user link) says:

Just as a small note...

In my experience, a company with a $100 million in revenue will spend roughly $2 million – $4 million on SOX compliance.

That’s a lot of money, and that could easily make the difference between profitability and breakeven. Never mind all the extra management burden. The CEO of one company told me that payroll used to be done by 1/2 person, now they need 2 full-time people just to meet SOX requirements….

SOX is an interesting attempt to force executives to be honest, largely as a result of Enron and MCI. The way I see it, the market punished both of those companies in a far deeper/harsher fashion than any government regulation ever would. And their executives were successfully prosecuted with the laws in place at the time.


tinky says:

SOX - extra overhead throughout the company

I work in a small manufacturing company owned by a large holding company. We still attempt to operate independently and make a profit independently. Since the introduction of SOX, every manager, from mid-level and up, is consumed with SOX-related activities, some of which make sense and many of which make less sense and create an enormous amount of red tape. We’re actually taking aside a significant % of our IT resources to try and write a homegrown application that will automate *some* of these requirements and hopefully free up a little of our time again in the long run – but even with that, there are many many hours spent writing procedures, writing checks for the procedures, reviewing numerous daily and weekly logs, and getting multiple people (sometimes 6 or 7) to sign off on every data update for e.g. a partner address change in a system. We’ve stopped a number of programmes because we cannot get SOX ready and complete our normal project loads. We’ve cancelled a number of strategic meetings because there just wasn’t time.

I agree with SOX in principle but sometimes, if you remove all oxygen to prevent fires, you kill the population too …

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