June 11 , 2007
BU Law Professor Tamar Frankel featured in The Analyst on Global IPOs
In April, BU Law Professor Tamar Frankel was interviewed for The Analyst on the shift of IPO offerings from the U.S. to Europe and its effect on Wall Street.
A recent report from the global consultancy firm McKinsey & Co. indicated that while the U.S. is normally the forerunner for both the number and value of IPO offerings, in 2006, Europe was first in both categories. The report suggests the complexity of the Sarbanes-Oxley Act (SOX), a federal law passed in 2002 to regulate accounting and reporting practices after major corporate scandals, is partially responsible for the migration.
In her interview, Frankel argued that the Sarbanes-Oxley Act is one instigator for the change, but not the only one.
“I believe that one of the main factors leading to IPO migration is globalization of the markets,” she told Analyst. “There are now places in the world which are becoming attractive homes for IPOs, especially if they lead to large investors’ markets.”
Frankel suggested the New York Stock Exchange and other marketplaces might actually gain from combining with markets abroad. “The new IPOs that went abroad may be the means for the U.S. investment banking and its model to spread around the globe,” she told Analyst.
Historically, Frankel argued, the U.S. has imposed firm regulations to encourage the growth of markets, and global markets require more uniform global regulation. In the long-run, Frankel said, the impact of the Sarbanes-Oxley Act will contribute to the integrity of the financial system. “America will survive the migration of IPOs but its markets will have a harder time flourishing if investors lose trust in the system because the regulation was too lax.”
>> Read Professor Tamar Frankel’s working papers essay, “Using Sarbanes-Oxley Act to Reward Honest Corporations”