There was a time when the U.S. capital market was the strongest and the most transparent market in the world.  Now, this market seems to have lost much of its past luster.

Competition from robust Asian and European markets seem to have taken a toll on the overly litigious and regulated U.S. market.

In 2000, about half of the global initial public offerings came from U.S. equity.  The number plummeted to 5 percent by 2005.  Additional data reveals that the nation’s share of equity capital in top 10 world economies was 41 percent in 1995.  However, this figure dwindled to a lackluster 27.9 percent by 2006.

However, it’s important to remember that these standards have been created for good reason.  After historic scandals such as Enron and WorldCom shook America’s capital markets, the American government reacted by creating additional precautionary measures and regulations.  

House passed rigorous legislations such as Section 404 of the Sarbanes-Oxley Act, which was comprised of new regulations to modify corporate practices in public companies.

These measures were supposed to bolster investor confidence.  However, it has contributed to our nation’s flagging economy.  Instead of doing business in the U.S., many companies are opting to conduct their business elsewhere in order to bypass expensive and bothersome regulations.  

Most scholars unanimously agree that the litigation friendly economy, stringent accounting standards, burdensome regulatory masures, and rigorous corporate governance environment have harmed the nation’s competitive edge.

While the U.S. government is stuck trying to make a more transparent marketplace, other global capital markets have forged forward, invented new strategies, invited renewed competition, and are now basking in a reinvigorated business climate.

The University of Georgia recently had a conference to discuss the U.S. capital markets’ present predicament.  The conference was attended faculty and students from Georgetown's McDonough School of Business along with prominent faces in U.S. capital markets.  

Treasury Secretary Henry M. Paulson, Jr. remarked at the conference, “Our markets are not immune to challenges.”  She spoke of the market’s regulatory structure, accounting standards, and legal and corporate governance; then asserted that our capital market is the lifeblood of the U.S. economy.

According to Paulson, regulators have the propensity to adapt to the changing market by expanding, rather than concentrating on principles-based regulatory competence.  

Additionally, Paulson noted that the accounting profession was significantly impacted by the corporate scandals of the late 90s and its subsequent reforms.  In America’s desire to regain investors’ trust, the government created reforms that have fundamentally altered the interactions between auditors and corporate heads.  

Paulson suggested, “Good corporate governance is a means to an end, not an end in itself.”  She urged for better managed, more competitive companies that command investor confidence through sound leadership, thoughtful governance, and excellent results.  

She stressed the need to rise above a rules-based mindset and work towards a principles-based approach.

Paulson concluded that there should be a balance between maintaining investor confidence and giving companies the flexibility to compete in the world economy.