Stock Transfer Restrictions and Issuer Choice in Trading Venues

Abstract

The recent spate of corporate scandals (Enron, Tyco, etc.) opened a "policy window" through which Congress and the executive were able to overcome the strong interest group pressures resisting federal usurpation of the states' traditional autonomy over the regulation of the internal affairs of corporate firms. Congress's response to Enron and its successors was the Sarbanes-Oxley Act ("SOX"), which is designed to improve corporate accountability and to assert the Securities and Exchange Commission as a major force in competition with the states in the production of corporate law rules. The Securities and Exchange Commission also responded to its new role by proposing rules to enhance the role of shareholders in electing directors. Much of corporate America observes, correctly, that SOX has increased costs with little or no benefit and that the SEC's proposals will diminish the effectiveness of corporate boards by provoking friction.