Driving Capital Markets Offshore


In 2005, 24 out of 25 of the year's largest initial public offerings (IPOs) took place outside the United States. Does that mean American capital markets are losing their appeal?

A new study says yes. In a working paper for the Committee on Capital Markets Regulation, Luigi Zingales of the University of Chicago Graduate School of Business writes that "while in the late 1990s the U.S. capital market was attracting 48 percent of all the global IPOs, its share has dropped to 6 percent in 2005 and is estimated to be only 8 percent in 2006." Many companies listing outside their native stock exchange have chosen to list in London rather than New York.

Why the decline? Among other causes, Zingales points to "excessive regulation and overly burdensome litigation risk." On the regulatory front, he suggests rethinking the requirements of the Sarbanes-Oxley Act, the strict accounting and securities reform that was passed after the Enron scandal broke. On the litigation front, he cites an increase in the total value of the settlements in securities class action lawsuits from $150 million in 1997 to $9.7 billion in 2005.

GRAPH: U.S. Share of Global IPOs Percent of global IPOs from Western Europe, Australia, New Zealand, Canada, or Japan listed in a U.S. exchange.

Source: Is the U.S. Capital Market Losing Its Competitive Edge?, by Luigi Zingales