Companies Don't Want to List in New York City

The City Journal reports:

The New York Stock Exchange’s proposed merger with Paris-based Euronext, which runs four electronic stock exchanges in Europe, may seem like positive news for New York’s economy. Wouldn’t it be great for Gotham to have the world’s first global stock exchange headquartered right on Wall Street, as the NYSE intends? But in fact one of the NYSE’s key reasons for initiating the merger carries troubling implications for New York’s economic future.

Many corporate executives, particularly those heading up-and-coming entrepreneurial companies at home and abroad, now consider the New York market an obsolete place to do business, and they are flocking to exchanges in Europe instead. In 2005, the NYSE and the Nasdaq won only 28 new international listings, a modest 16 percent increase from the year before; by contrast, the two major European exchanges, the London and the Luxembourg Stock Exchanges, won 50 listings between them, more than double their new listings in 2004. The NYSE is reaching across the Atlantic just to stay competitive.

Europe is winning business that once went automatically to New York largely because companies find that the burdensome requirements imposed by America’s four-year-old Sarbanes-Oxley law simply aren’t worth the trouble. Sarbanes-Oxley (SOx), enacted in haste by Congress and signed by President Bush just months after Enron’s 2001 demise shook the financial markets, requires companies to jump through numerous hoops each year at the behest of government regulators. Companies of all sizes now must spend millions of extra dollars annually to ensure that they have adequate “internal controls” in place if they want a listing on a U.S.-based stock exchange. The Chicago-based Foley & Lardner law firm has estimated that for medium-sized companies, the “cost of being public” has risen 223 percent since 2002, due to these new rules.

Sarbanes-Oxley may help accountants in the short run but New York City is the big loser in the long run.