SOX, NY and the market for law

The WSJ reports that NYC has commissioned a study that is leading Mayor Bloomberg and Sen. Schumer to "suggest that the 2002 Sarbanes-Oxley corporate-governance and accounting act be relaxed, especially for some foreign and small companies." The report also called for, among other things, encouraging arbitratration and consideration of a merger of federal market regulators.

The reason for these suggestions is the report's finding "that a broad measure of financial activity known as financial stock -- the sum of a country's public equities, debt and bank deposits -- grew at a compounded annual rate of 8.4% in the United Kingdom, 7.5% in Japan, 15.5% in Asia outside of Japan and only 6.5% in the U.S. between 2001 and 2005. From 2002 to 2005, London's financial-services work force expanded 4.3%, while New York City's fell 0.7%, or more than 2,000 jobs."

This is a classic example of what I have called the "law market" in operation. Courts and regulators (e.g., the U.S. Congress) are finding that they do not have as free a hand as they once thought in a global economy. Firms are mobile, and this activates what I have called "exit-affected" interest groups in the countries they leave (such as the NY financial markets).

For an application of this theory, see my recently posted Corporations and the Market for Law. See also my paper with Jon Klick and Bruce Kobayashi, The Effect of Contract Regulation, which shows the perhaps surprising effect of state franchise regulation on local employment.

Comments

[save_the_rustbelt]

Sending manufacturing and tech jobs overseas is a good thing, but shipping financial work overseas is a bad thing?

Guess the wrong ox is being gored.

What is good for the manufacturing worker should be good for the I-banker.