The Incredible Shrinking Stock Market: On the Political Economy Consequences of Excessive Delistings

52 Pages Posted: 13 Jan 2016 Last revised: 7 Feb 2018

See all articles by Alexander Ljungqvist

Alexander Ljungqvist

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Lars Persson

Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Joacim Tåg

Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 3 versions of this paper

Date Written: February 1, 2018

Abstract

Over the past two decades, the U.S. stock market has halved in size as the "public firm model" has begun to fall out of favor. We develop a political economy model of delistings from the stock market to study the wider economic consequences of this trend. We show that the private and social incentives to delist firms from the stock market need not be aligned. Delistings can inadvertently impose an externality on the economy by reducing citizen-investors' exposure to corporate profits and thereby undermining popular support for business-friendly policies. A shrinking stock market can trigger a chain of events that leads to long-term reductions in aggregate investment, productivity, and employment.

Keywords: Private equity, political economy, stock market, delistings, investment, productivity

JEL Classification: G34, G24, P16

Suggested Citation

Ljungqvist, Alexander and Persson, Lars and Tåg, Joacim, The Incredible Shrinking Stock Market: On the Political Economy Consequences of Excessive Delistings (February 1, 2018). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 458/2016; IFN Working Paper No. 1115. Available at SSRN: https://ssrn.com/abstract=2714916 or http://dx.doi.org/10.2139/ssrn.2714916

Alexander Ljungqvist (Contact Author)

Stockholm School of Economics ( email )

111 60 Stockholm
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Lars Persson

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Joacim Tåg

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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