Page 3 of
3 The decline of US
equity markets By Julian
Delasantellis
validity, that might
fly with a general public whose idea of an
accounting scandal goes no further than concerns
about the fairness of the vote-counting on the
television program American Idol. And in
this era of unchecked American xenophobia and
nativism, they've come up with a really good one.
These days, the sum of their argument is
the claim that, in the wake of the passage and
implementation of Sarbox, the proportion of
international stocks being brought to the US equities
markets for original listing
and trading, what are called initial public
offerings (IPOs), is declining.
At first
glance, it is hard to see why anyone, save perhaps
those who sell ultra-upscale jewelry, automobiles,
or escort services to the tony New York
investment-banking crowd, should care what the
proportion of world stock IPOs being done in the
US currently is. But for the anti-Sarbox crowd,
they've latched on to this issue with a passion
and intensity evocative of Cold War propaganda;
you half expect schoolchildren to be warned to
"duck and cover" underneath their desks to defend
themselves against the threat posed by incoming
foreign-market IPOs.
An all-star team of
America's business and economic elite have come
together to form the Committee on Capital Markets
Regulation, the main group lobbying the public
debate to weaken Sarbox. They give the US the bad
news that:
In the late 1990s, the US
exchange-listed capital markets were attracting
48% of the value of all global initial public
offerings. By 2006, US market share had fallen
to 7.2%. If US investors are to have access to a
vibrant US IPO market and all the protections it
affords, then US regulators must work to reverse
this trend.
Their recommendation? In
corporate gobbledygook:
The committee recommends that
materiality for scoping an assessment should be
defined, as it was traditionally, in terms of a
5% pre-tax income threshold.
In
English, what they are recommending is that the
corporations get a freebie for the first 5% of
lying about their earnings.
Of course,
comparing current IPO levels with those of the
late 1990s ignores the fact that the previous
period was the era of the dotcom frenzy; many of
these companies had spectacular IPOs and, soon
after, equally spectacular bankruptcies.
Also, with the tremendous recent growth of
foreign economies has come a concomitant growth of
foreign equity markets; it should not be all that
surprising that foreign entrepreneurs, if only to
display their national pride, should want to have
a stock listing on a market closer to home.
Also, the argument regarding fewer foreign
IPOs does not automatically, in the absence of
further data, prove Sarbox's causation.
Researchers Craig Doidge, G Andrew Karolyi and
Rene M Stultz, writing in the journal of the
Fisher College of Business at Ohio State
University, report that "there is no deficit in
cross-listing counts on US exchanges related to
SOX".
There is also another potential
reason for the decline in the attractiveness of US
equity markets for foreign entrepreneurs, one that
is obvious to those outside the country, but one
to which almost all Americans, including the
financial press, is oblivious.
Recently,
New York Times economics columnist Daniel Gross,
on his Moneyblog, noted how all foreign visitors
to the United States, even high-powered foreign
corporate executives, must, in this post-September
11 era, share the common fate of needing to obtain
approval from the preening despots who are the US
border agents who now guard the gates of, and
decide who gets to enter, the nation.
Notwithstanding the Bush administration's
continued affirmations that racial profiling is
not a factor in selecting out visitors for
enhanced inquisition, visitors from Muslim or
South Asian nations particularly know this is
untrue.
At best this is a process that
usually contains no small measure of degradation,
humiliation and caprice; at worst, this process
can end with the visitor arbitrarily seized for
internment without any right of judicial review or
redress. Sometimes the only "offense" the visitor
has committed is having his name incorrectly read
or transliterated on the border agent's computer.
Black Americans know they are constantly
susceptible to being pulled over by highway police
for what they call DWB (driving while black); the
comparable danger for those entering the country
is FWA - flying while Arab.
Is it any
wonder that this unspoken reality is deterring
visits to the United States by foreign
entrepreneurs? After all, you're probably going to
miss your lunch at Tavern on the Green with the
investment bankers planning your IPO if you're
being waterboarded at Guantanamo.
So the
song remains the same. A righteous attempt to
ensure that America's business elite attend to the
same basic rules of honesty and decency as the
rest of us is under attack since, it seems, the
business elite still doesn't feel it should have
to obey the same basic rules of honesty and
decency that the rest of us do.
There is a
story, possibly apocryphal, of a 1920s
conversation between F Scott Fitzgerald and Ernest
Hemingway. Fitzgerald observed that "the rich are
different from you and me", to which Hemingway
replied, "Yes, they have more money." If a
modern-day Hemingway were making this riposte to a
contemporary Fitzgerald, he might, looking at the
fight against Sarbox, reply: "Yes, they have
better public relations staff."
Julian Delasantellis is a
management consultant, private investor and an
educator in international business in the US state
of Washington. He can be reached at
juliandelasantellis@yahoo.com.
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