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Down on the Street

Down on the Street

by Rick Turoczy on December 1, 2006

But Sarbanes-Oxley is not just about costs. In theory, a higher standard of corporate-governance should result in a higher valuation, since listing in a well-regulated market shows a commitment from a company that it will not abuse investors. If this premium is high enough, it will offset the costs of compliance. One study, conducted post-Sarbanes-Oxley, found that the premium placed on the value of an emerging-market firm listing in New York can reach 37%; preliminary research suggests the value of a London listing is not as high. Mr Zingales’s calculations suggest that the New York premium outweighs costs for companies with a market value of more than $230m.

For the most part, reformers insist they are not out to gut Sarbanes-Oxley, but to make it more “risk-based”. This means keeping the goals largely the same but giving firms and their auditors more leeway in achieving them. That battle may already be won: the Securities and Exchange Commission, America’s chief market-regulator, and the Public Company Accounting Oversight Board, which was created by Sarbanes-Oxley, have both announced reviews of Section 404, hinting strongly that the burden will be eased, especially for smaller firms. On November 16th Christopher Cox, the SEC’s chairman, promised “significant changes” in coming weeks.

Down on the Street

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