Should we Worry about the Decline of the Public Corporation? A Brief Survey of the Economics and External Effects of the Stock Market

37 Pages Posted: 1 Oct 2019

See all articles by Nikita Koptyug

Nikita Koptyug

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)

Date Written: June 1, 2019

Abstract

In recent years, the number of listed companies has been declining in many countries across the world. This paper provides a selective survey of the literature on the real economic effects of the stock market to assess the potential effects of this decline and determine whether it is likely to continue. The leading economic role of the stock market’s primary market, in which firms raise capital by issuing new shares, is to help growing firms secure financing. We discuss providing and certifying information, coordinating investors, and easing the redeployment of capital as the means through which capital allocation can be achieved efficiently. The main economic role of the stock market’s secondary market, the trade in existing shares, is to provide liquidity to shareholders, to aid in price discovery, and to provide diversification opportunities. Positive external effects from an active stock market may arise on consumers, labour and private firm due to increased corporate investment, more social responsible business strategies and a more positive business climate. Negative external effects on capital allocation and productivity can arise from short-termism, market mispricing, and increased cross-ownership. Local stock markets can spur innovation and foreign direct investment (FDI) and reduce the risk of early cross-border acquisitions. Given the myriad of useful economic functions the stock market performs, a future entirely absent of public companies is difficult to imagine and the decline is therefore likely at some point to come to an end. Whether we need to worry about the decline depends on the relative importance of the positive and negative external effects, a topic we feel warrants more research.

Keywords: External effects, Growth, Productivity, Real effects, Stock market

JEL Classification: G10, G30, L10, L50

Suggested Citation

Koptyug, Nikita and Persson, Lars and Tåg, Joacim, Should we Worry about the Decline of the Public Corporation? A Brief Survey of the Economics and External Effects of the Stock Market (June 1, 2019). IFN Working Paper No. 1298. Available at SSRN: https://ssrn.com/abstract=3456584

Nikita Koptyug

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 (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

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

Register to save articles to
your library

Register

Paper statistics

Downloads
30
Abstract Views
173
PlumX Metrics