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

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

Alexander Ljungqvist, Lars Persson, Joacim Tåg

Series number :

Serial Number: 
458/2016

Date posted :

January 01 2016

Last revised :

January 29 2016
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Keywords

  • private equity • 
  • political economy • 
  • stock market • 
  • delistings • 
  • investment • 
  • productivity

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.

Authors

Real name: 
Lars Persson
Real name: 
Joacim Tåg