The Evolution of World Capital Markets and Corporate Governance: The Sarbanes-Oxley Act of 2002
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2008
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Haverford College. Department of Political Science
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eng
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Haverford users only
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Abstract
The United States Congress reacted to the corporate scandal wave that began with notorious demise of the Enron Corporation by passing into law the Sarbanes-Oxley Act of 2002. This Act was intended to restore investor confidence in American capital markets, stability to a slumping U.S. economy, and law and order to the executive offices of corporations and accounting firms. It represented a momentous shift in the United States' historically laissez-faire philosophy toward the regulation of corporations, as the Federal Government not only intruded into corporate boardrooms for the first time, but it also assumed responsibility for the accounting industry. In Congress's haste to mollify the crisis created by Enron, however, it ignored the risks of overregulation. The Sarbanes-Oxley Act has had several severely adverse effects on the U.S. economy, but most pressingly, it has threatened the United States' position atop global capital markets. By extraterritorially applying the Act to foreign firms, the U.S. not only forced many to de-list and move overseas, but also kept many prospective businesses from considering American markets. The damage to the American economy has been serious, but, furthermore, the market to which most firms migrated, Europe, does not adequately protect investors. In light of the increasing interpenetration of American and European capital markets, regulatory bodies on both sides of the Atlantic must work hand in hand to construct a fair and secure market, one which effectively protects investors but does not overburden corporations. While the United States must rollback its most excessive measures, Europe must work to ubiquitously implement reform. These two partners have been at work for some time now, but there is still a long distance to travel on the 'roadmap' to reform.