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

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

Alexander Ljungqvist, Lars Persson, Joacim Tåg

Series number :

Serial Number: 
458/2016

Date posted :

January 01 2016

Last revised :

February 09 2018
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Keywords

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

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.

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Authors

Real name: 
Lars Persson
Real name: 
Joacim Tåg