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

Abstract

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.

Citation

Nordberg, D. (2008), "Waste makes haste: Sarbanes‐Oxley, competitiveness and the subprime crisis", Journal of Financial Regulation and Compliance, Vol. 16 No. 4, pp. 365-383. https://doi.org/10.1108/13581980810918422