Tuesday, November 14, 2006

Forbes Magazine: NY hearts smart money

Forbes Magazine's Elizabeth MacDonald writes in the November 8th issue that the much ballyhooed City of London/London Stock Exchange study released last July actually shows that trading costs on the New York Stock Exchange are lower than in London or elsewhere. (See "The Safest Financial Capital?") (A link to the LSE study can be found in my July 24 article, "The Financial Times is the London Stock Exchange's bitch".)

In other news, today is the first time I've ever written a sentence with the word "ballyhooed" in it.

MacDonald also notes several other studies that seem to contradict the key point of the City of London/LSE report that the LSE offers issuers a lower cost of capital than New York. In particular, she cites a joint study of internal controls at 667 companies by the University of Wisconsin-Madison, the University of Texas at Austin, the University of Iowa and the MIT-Sloan School of Management which finds that the dreaded Sarbanes-Oxley Act has helped lower the cost of equity capital for US-listed companies by 50 to 150 basis points. A separate study by the consulting firm Orchestria (see here) suggests that US capital markets have been much better at internalizing a "compliance culture" than London has, and this compliance culture makes deterring financial misconduct easier.

MacDonald's recent articles are interesting because they join a growing counterattack against industry groups lobbying to have the law modified or repealed. This debate pits industry groups such as the "Paulson Committee," the U.S. Chamber of Commerce and the CEOs of the 6 largest auditing firms against former SEC chief accountant Lynn Turner and Consumer Federation of America investor protection guru Barbara Roper (see "Stock Market Brawl") and, of course, the New York Times editorial board (see here).

And me. But for me it's less about SOX than it is the LSE. I just think they're obnoxious.

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