Private Equity's Unintended Dark Side: On the Economic Consequences of Excessive Delistings

50 Pages Posted: 2 Feb 2016

See all articles by Alexander Ljungqvist

Alexander Ljungqvist

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); 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: January 2016

Abstract

Over the past two decades, private equity has contributed to a shrinking of the U.S. stock market. We develop a political economy model of private equity activity to study the wider economic consequences of this trend. We show that private and social incentives to delist firms from the stock market are not always aligned. Private equity firms could inadvertently impose an externality on the economy by reducing citizen-investors’ exposure to corporate profits and thus undermining popular support for business-friendly policies. This can lead to long-term reductions in aggregate investment, productivity, and employment.

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

JEL Classification: G24, G34, P16

Suggested Citation

Ljungqvist, Alexander and Persson, Lars and Tåg, Joacim, Private Equity's Unintended Dark Side: On the Economic Consequences of Excessive Delistings (January 2016). CEPR Discussion Paper No. DP11075. Available at SSRN: https://ssrn.com/abstract=2726555

Alexander Ljungqvist (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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HOME PAGE: http://pages.stern.nyu.edu/~aljungqv

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR)

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European Corporate Governance Institute (ECGI)

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Research Institute of Industrial Economics (IFN) ( email )

Box 55665
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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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