The Perverse Consequences Of Sarbanes-Oxley
from the in-the-dark dept
The long-sluggish IPO market staged a rebound in 2006, leading some to conclude that all of the whining about Sarbanes-Oxley and the cost of being a public company was just that, whining. But there's still plenty of evidence suggesting that Sarbanes-Oxley is a real burden on public companies. In addition to the direct costs of compliance, you can see it in the explosion in private equity and management buyouts, as the smart money realizes that there are advantages to being private. Bloomberg points to another perverse effect of the legislation: companies are realizing that they're best off if they can keep things completely in the dark, as opposed to making them open. The example it cites is the corporate bond market, where there's a flourishing practice of selling unregistered bonds to institutions. Typically, if a company had a bond offering, it would have to register that with the SEC, a process that's become quite burdensome. But, if the bonds are just traded among institutions, with no plans to make them available to the public, then the company doesn't have to file anything. This practice has grown by 50% in the last two years, far outstripping the rest of the market. Of course, unregistered bonds carry a higher degree of risk, but because there's a high demand for bonds these days, it's a risk that buyers are willing to take. This is obviously the opposite of what Sarbanes-Oxley intended, but it's the natural result of a law that imposes higher costs on companies that report publicly.