SOX 5 years on

The Economist takes a look at the Sarbanes Oxley Act (SOX) 5 years on. A response to corporate collapses (and particularly Enron), it's compliance costs have been accused of driving listing offshore, especially to London. An alternative view is that it is making U.S. investments safer. See an earlier post linking to research that shows that SOX may be resulting in lower cost of capital for US listed firms.

SOX and cost of capital

Jeremy Grant in The Australian writes:

ALMOST three-quarters of the chief financial officers in the US believe that Sarbanes-Oxley should be "repealed or reformed" as the costs of the 2002 compliance law have outweighed the benefits, according to a survey.

The findings underscore the scale of frustration over the costs associated with implementing "Sarbox", even as regulators said that costs were expected to fall as new guidelines for the law were finalised.

In a survey of 484 chief financial officers by Duke University and CFO Magazine, almost 70 per cent said the costs of adhering to Sarbox requirements - principally its section 404 provisions on checking internal controls - "greatly outweigh its benefits".

Well, it might not all be bad. There's at least some research out there that purports to show that effective internal controls are associated with cheaper capital.