Today, our IPO market is broken. That avenue of exit has been crushed by the weight of governance regulations, especially Sarbanes-Oxley. These rules were intended to restore confidence in our public markets. They have, instead, prevented ordinary people from investing in maturing companies like Facebook, Twitter, or LinkedIn, and hampered the ability of companies like that to attract the talent they need to get going. Such companies are now forced to go to private markets for liquidity, markets that are far less accessible to smaller firms than IPOs used to be.
We will never know how many Microsofts or Apples have not been able to get off the ground since 2002–the year SOX was passed–or may not in the future, because of the higher cost of securing needed talent. Unfortunately, the people who proliferate these rules like Topsy are not accountable for what doesn’t get created.
He's right. See my Corporate Governance and U.S. Capital Market Competitiveness, which argues that:
During the first half of the last decade, evidence accumulated that the U.S. capital markets were becoming less competitive relative to their major competitors. The evidence reviewed herein confirms that it was not corporate governance as such that was the problem, but rather corporate governance regulation. In particular, attention focused on such issues as the massive growth in corporate and securities litigation risk and the increasing complexity and cost of the U.S. regulatory scheme.
Tentative efforts towards deregulation largely fell by the wayside in the wake of the financial crisis of 2007-2008. Instead, massive new regulations came into being, especially in the Dodd Frank Act. The competitive position of U.S. capital markets, however, continues to decline.
This essay argues that litigation and regulatory reform remain essential if U.S. capital markets are to retain their leadership position. Unfortunately, the article concludes that federal corporate governance regulation follows a ratchet effect, in which the regulatory scheme becomes more complex with each financial crisis. If so, significant reform may be difficult to achieve.
