By Megan Davies and Joseph Giannone
SAN FRANCISCO (Reuters) - Cooler investor demand for small companies and the cost of stricter financial regulations have made U.S. markets less attractive for initial public offerings, but New York exchanges remain the top choice for overseas firms, venture capitalists said on Monday.
For years, almost all non-U.S. companies going public aspired to a listing on the Nasdaq Stock Market (NDAQ.O: Quote, Profile, Research, Stock Buzz), considered to the most liquid, most open exchange for both companies and investors.
But the added expense of complying with stricter reporting standards under the U.S. Sarbanes-Oxley Act of 2002 created an opening for other markets, such as London's Alternative Investment Market, to lure start-ups with the promise of a liquid marketplace and looser regulations.
Even so, Nasdaq is still the top choice among emerging market companies, U.S. venture capitalists said at the Reuters Venture Capital Summit held in San Francisco.
"Nasdaq I think is still the best market out there," said David Chao, co-founder of Doll Capital Management. "Folks in China, no question, view a Nasdaq listing as the primo, the primary -- it's the prize. For them to go public (on) AIM or Hong Kong is the next best thing."
Sarbanes-Oxley, enacted in the wake of the Enron and WorldCom scandals, was meant to clean up corporate governance and accounting.
But stricter corporate reporting and governance requirements created new expenses, and the emergence of viable alternatives has prompted many companies outside the United States to shy away from U.S. markets. Of particular concern is Section 404 of Sarbanes-Oxley, which forces more disclosure about corporate internal controls.
For small start-up companies, these costs are a significant drain on profits and subsequently the companies' market value. That has allowed AIM, a division of London Stock Exchange (LSE.L: Quote, Profile, Research, Stock Buzz), and Paris-based Euronext ENXT.PA, to compete for listings. Continued...
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