Foley & Lardner have just published an eye-opener on the effects of Sarbanes-Oxley (SOX) on public companies (thanks to Paul Kedrosky for the pointer):
The Cost of Being Public in the Era of Sarbanes-Oxley

Notice how audit fees for small-cap companies have nearly quadrupled in 4 years:

The following chart in this Economist article really tells the story of the disproportionate load small companies bear in compliance with SOX:

The Washington Times has noticed the adverse effect of SOX as well. Thomas J. Duesterberg wrote about it last month:

The genius of the American economy has always resided in the entrepreneurial spirit animating its participants and a flexible legal, cultural and institutional environment allowing it to flourish. There has always been a certain tension between the unfettered capitalist ethic and the need for rules and regulations to make the system run smoothly and prevent distortions.

There is — for better or worse — emerging solid empirical evidence that high compliance costs are affecting entrepreneurial and risk-taking behavior and driving economic activity outside the United States.

All of this certainly confirms Tim Draper’s observations and the sucking sound from London & Europe.

Is this what we wanted out of SOX?

In this post, I provided some of venture capitalist Tim Draper’s recent comments on how Sarbanes Oxley is driving increasing numbers of emerging U.S. companies to seek alternatives to capital from New York. USA Today confirms Draper’s views in Europe widens playing field, and presents other factors which are contributing to the growing role of London and Europe as global financial centers:

Tougher U.S. regulations following the collapse of Enron are making New York less attractive to foreign and domestic companies seeking capital. And tighter immigration rules following the Sept. 11 terrorist attacks make New York less welcoming to financial firms and their clients and staff.
At the same time, London and Europe are close to some emerging markets and are enjoying lower interest rates. The relaxation of economic and immigration borders in the European Union has stimulated foreign mergers and acquisitions, and made London, Amsterdam and Brussels more attractive to a highly skilled financial workforce.
A less-stringent regulatory atmosphere across the Atlantic is attracting capital and emerging companies that seek it.

That sucking sound from London and Europe? It’s the financial centers drawing increasing numbers of emerging companies and financial talent from the U.S.