Market for Agency Costs: Loosing the Competition by Protecting the Ignorant - Good Rules by Good Governance
90 Pages Posted: 14 Apr 2008
Date Written: January 2008
Europe is on the threshold of a campaign of imposing more disclosure requirements and costs through company and securities legislation. The following issues led to this European policy: Firstly, the SarbOx adaptation policy was put in place to protect European companies from the SEC's filings and protect the European economy from the spill over effects in other to boost confidence; secondly, there was the policy on the creation of a single financial market. It will be contended here that the European Member States' characteristics do not correlate with the aforementioned campaign. Europe is known for its high concentrations of block holders or a low concentration of sophisticated active investors who vigorously and effectively look for influence or control; the latter being on the rise. The new disclosure requirements may affect some efficient European countries and could affect a firm-level of governance. Academicians cried for reforms after financial crises and market players fervently hoped for a bigger market. The regulatory competition between the US and the EU is more replica of Tom & Jerry's cartoon chase. In this instance, European Member States still have not adapted to the US costly audit rules of 2002, the PCAOB and the SEC adapted to the UK cost effective regulation by adopting Auditing Standard 5. (Note that AS 5 was adopted less than a year after the Committee of Capital Markets Regulation issued its 1st wake-up call report.) This discloses the fast pace by the US and remarkably the slow pace of the EU in adapting to new events. Who must bear the costs to disclose or monitor? Who must set the disclosure requirements? What kind of rules is needed in Europe in a globalising world? This thesis attempts to give the reader an insight why one of Lisbon's goals will not be reached in 2010. Added to that, it shows that Europe in fact needs to revitalise its good governance. This is needed to improve its law-making process and flexibility of rules that harmonise Europe without harming its champion, the UK.
Keywords: Sarbanes, Disclosure, Monitoring, Directives, Regulatory Competition, PCAOB, IFRS 7, 404, GAAP, Turnbull, Europe, Equity market, Competition
JEL Classification: K22, R58, R38, R13, O57, N40, N41, N42, N43, N44
Suggested Citation: Suggested Citation