Delisting in the US because of Sarbanes-Oxley

The costs of compliance with the Sarbanes-Oxley Act are leading some international companies to delist in the US, with others not bothering to apply for stock market listing.

A report yesterday in Business Week Online said that the tough corporate-reporting regulations passed in the US in 2002 after the wave of financial scandals have many American companies scrambling to comply with the new requirements. But in Europe, they’re provoking a slightly different reaction.

Financial-management consultancy Parson Consulting estimates that complying with Sarbanes-Oxley would cost the 70 British-headquartered businesses included in their survey a total of $860 million. Another survey of corporate board members conducted by executive-search firm Korn/Ferry International estimates that complying would cost the US companies surveyed an average of $5.1 million.

As the cost of regulation grows, some say the advantages of listing on a US exchange are decreasing as US-based institutional investors become more willing to buy shares on European markets.

Business Week says it’s unlikely that the US stock markets will see a mass exodus of international companies in the near future, and not only because many continue to want access to the world’s largest pool of market capital. Currently, even if outfits leave an exchange, they are still required to report to the SEC until they can prove that their US shareholders number less than 300.

For many companies, this can be close to impossible. "If it were easy, many of them would have [delisted] already," says Michael Hughes, chair of the audit process at KPMG in the UK.

Business Week | Foreign Outfits Rue Sarbanes-Oxley

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