Waste makes haste: Sarbanes-Oxley, competitiveness and the subprime crisis

This source preferred by Donald Nordberg

Authors: Nordberg, D.

http://dx.doi.org/10.1108/13581980810918422

Journal: Journal of Financial Regulation and Compliance

Volume: 16

Issue: 4

Pages: 365-383

Publisher: Emerald

ISSN: 1358-1988

DOI: 10.1108/13581980810918422

Passage of the Sarbanes-Oxley Act of 2002 followed hard on the collapses of Enron and WorldCom. Waste makes haste. It was legislation drafted in anger. Five years later, and after three official reports, US government agencies and financial market participants worry that the New York may have lost competitiveness as a venue for international capital transactions. Then came the subprime shakeout and resulting crisis of confidence in credit markets. These combined lecture notes and discussion paper raise questions about many of the assumptions made in the discourse about the relative competitiveness of US and European capital markets. It suggests that the remedies in Sarbox didn't entirely match the ailments in evidence in the Enron and WorldCom cases. But the costs and resulting loss of competitiveness may be overstated in many popular accounts of the effects of the legislation. And there is something to be said for the view that New York missed out on business that it could well afford to miss. But did the haste of making Sarbox lead to us to waste an opportunity to prevent the subprime débâcle?

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Authors: Nordberg, D.

Journal: Journal of Financial Regulation and Compliance

Volume: 16

Issue: 4

Pages: 365-383

eISSN: 1740-0279

ISSN: 1358-1988

DOI: 10.1108/13581980810918422

Purpose - The passage of the Sarbanes-Oxley Act of 2002 followed hard on the collapses of Enron and WorldCom. Waste makes haste. Official reports for US government agencies worried that the legislation may have impaired New York’s competitiveness as a venue for international capital transactions. But a threat from a seemingly different direction - the subprime shakeout - exposed bigger issues. This paper aims to raise questions about many of the assumptions made in the discourse about the relative competitiveness of US and European capital markets. Design/methodology/approach - Building on Healy and Palepu’s analysis of Enron, it compares the root issues at Enron with a preliminary view of the sources of the subprime crisis to build an outline for regulatory response. Findings - Remedies in Sarbanes-Oxley failed to address several of the ailments in evidence in Enron. The haste of making “Sarbox” may have led us to waste an opportunity to prevent or reduce the impact of the subprime debacle. Originality/value - The comparison of the seemingly unrelated cases reveals similar ethical gaps and regulatory lapses, suggesting a different type of legislative and regulatory response may be needed. It makes suggestions for further research to guide future policymaking. © Emerald Group Publishing Limited.

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