Compliance: Is Sarbanes-Oxley Working? - ' Burnt Offerings'
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: SOX and the IPO Market">
Burnt Offerings: SOX and the IPO Market
Included in that hard-to-attribute category, he says, is the relative dearth of initial public offerings in the SOX era. But critics of the law, from Wall Street to Capitol Hill, have been quite willing to blame SOX for the IPO drought. Writing in the Wall Street Journal in May, Senator Jim DeMint (R–S.C.) and Representative Tom Feeney (R–Fla.) said that Sarbanes-Oxley is "discouraging U.S. companies from raising capital by going public, which denies them a greater ability to expand and hire new workers. And some businesses that were public when the law was passed have concluded they would rather cut off their access to capital than comply with Sarbox. Since 2002, 75 community banks have gone private, while large companies such as Vivendi have simply de-listed in the U.S."

There are some weaknesses in this analysis, starting with the increasing robustness of the U.S. IPO market. May was the liveliest month for public offerings since the bubble burst, and the first five months of 2006 saw almost 20 percent more IPOs than the comparable period of 2005. But the complexity runs much deeper than this newfound bullishness. The capital markets are awash in an unprecedented amount of private money, providing companies with attractive alternatives to public offerings. Says one partner at a New York City private equity fund, "We are putting good deals on the table, and not coming close because other private investors are so eager to buy these companies. The need to tap the public markets for capital is just not there like it was in the past."

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And again, it may be that fewer public offerings represents a successful side of SOX, not a failure. "If you can tie the number of IPOs to SOX, perhaps it shows that firms should have more controls in place before they have access to public markets," says Gregory Bell, a group vice president at CRA International, a Boston-based research and consulting firm that developed a survey of accounting firms and their audit clients.

Story Guide:

Learning to Live With SOX

What Does "Working" Mean for SOX?

SOX by the Numbers

Burnt Offerings: SOX and the IPO Market

The Real Problem with SOX

Sidebar:Larry Ribstein on the Holes in SOX

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