In case anyone hasn’t noticed, more and more North American companies are choosing to
go abroad to raise capital via an IPO (initial public offering).
Why?
It’s clearly due to the burden of the strict regulatory environment in North America.
Put simply, Sarbanes Oxley is driving companies abroad to raise capital.
And how can you blame them when even the “good guys” get hit by the regulatory bug….and hit hard.
Exhibit A: Cognos Inc.
In May of 2006 the SEC (Securities and Exchange Commission) announced a “Staff Review” of Cognos’ revenue allocation practices. When the company broke the news the stock was hit by a sledge hammer. A 13% decline in stock price! When the SEC announced the conclusion of the Staff Review on July 20, 2006 and Cognos’ revenue allocation practices were given the thumbs up, guess what happened to the stock price? Nothing! It barley moved, never mind recovering the 13% it had lost months before.
So much for an efficient market!
Has the SEC gone too far with its regulatory power?
The more appropriate question is probably – does the market appropriately react to the SEC’s actions? Newly listed companies are certainly casting their votes by choosing to go abroad and leaving the headaches of over-regulation to their US listed peers.